COPE INC, 10KSB, 2000-04-14

COPE INC
10KSB, 2000-04-14
ELECTRIC LIGHTING & WIRING EQUIPMENT

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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-KSB

(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ________________ to _________________.

Commission File Number 1-9925

COPE, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)

- ---------------------------------- -----------------------------------------
Delaware 87-0427731
- ---------------------------------- -----------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)

Grundstrasse 12, 6343 Rotkreuz, Switzerland
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(Address of principal executive offices)

+ 41 41 798 33 44
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(Issuer's telephone number)

Securities to be registered under Section 12(b) of the Act:

Title of each class Name of each exchange on which
to be so registered each class is to be registered

None N/A
- ---------------------------------------- -------------------------------------

Securities to be registered under Section 12(g) of the Act:

Common Stock, $.001 par value
- --------------------------------------------------------------------------------
(Title of class)
<PAGE>

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
As been subject to such filing requirements for the past 90 days.

Yes X No
------ ------

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K contained in this form, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [__]

The issuer's revenue for the fiscal year ended December 31, 1999 was
$32,361,504.

The market value of the voting stock held by non-affiliates of the issuer as of
March 27, 2000 was approximately $____________.

The number of shares of the common stock outstanding as of March 27, 2000 was
4,289,129

Documents incorporated by reference: None.
<PAGE>

Part I.

Item 1. Description of Business.

General

COPE, Inc. ("COPE") is a provider of enterprise data storage and security
consulting, services, software and solutions to customers located primarily in
Western Europe. COPE's storage and security business consists of the analysis,
design and implementation of storage and security systems that integrate the
software and hardware products that best meet the identified objective. COPE
generally provides its data storage and security systems on a turn-key basis and
purchases for resale the software and hardware components made part of the
systems solutions. The company resells software and hardware products offered by
the major vendors in the data storage and security industry. COPE also offers
its own proprietary storage software products, Hiback and Hibars. COPE provides
enterprise data storage and security systems and solutions to a variety of
companies in the financial, insurance, pharmaceutical and telecommunication
industries located primarily in Germany, Switzerland, and Austria.

In the first quarter of 2000, COPE commenced the provision of consulting,
services and solutions to new economy companies including the design,
development and operation of application infrastructure and managed web sites.
COPE intends to act as an application infrastructure provider (AIP) and managed
web host provider (MHP).

COPE's goal is to become the leading independent provider of enterprise data
storage and security services and solutions and e-platforms in Western Europe.
The key elements of COPE's strategy are:

. Continue to Emphasize Storage and Security Consulting Services. By
emphasizing the quality of its consulting services in the area of data
storage and security, COPE believes that it can establish and foster a
reputation in Western Europe as a leading provider of enterprise
services and solutions.

. Foster a Reputation for Independence. COPE intends to foster the
reputation and image in the storage and security industry of an
independent organization firm dedicated to providing storage and
security services and solutions to the enterprise data storage market
only.

. Expand Through Targeted Acquisitions. COPE intends to aggressively
seek out and acquire high quality independent consulting firms
throughout Western Europe.

. Leverage off its Core Competence to Develop an E-Platform Solution.
COPE has a unique standing in Central Europe due to its experience and
reputation in the date storage industry. Data storage and security are
key elements in the Internet age and COPE's core competence in this
area provides it with an advantage in designing, developing and
operating application infrastructure and managed web sites. COPE
intends to leverage off it reputation and success in the data storage
and security industry to develop and market an e-platform solution to
its clientele.
<PAGE>

Business Development

COPE Reorganization

COPE was formed on October 7, 1985 under the name "Harrier, Inc." From
October 1985 to September 1998, COPE was operated under the name "Harrier,
Inc." by predecessor management as a developer and marketer of health, fitness
and medical products. In September 1998, the predecessor management of COPE
completed a series of transactions (referred to as the "COPE Reorganization") by
which COPE discontinued all operations and divested itself of substantially all
of its assets and liabilities relating to the development and marketing of
health, fitness and medical products. At the same time, COPE acquired all of
the outstanding capital shares of COPE Holding AG, a Swiss stock corporation
engaged in the business of enterprise data storage. It was at this time that the
company changed its name to "COPE, Inc."

The COPE Reorganization was carried out pursuant to an Amended and Restated
Securities Purchase Agreement and Plan of Reorganization dated July 24, 1998
between COPE and the shareholders of COPE Holding AG. As a result of this
agreement, COPE:

. amended its certificate of incorporation to change its name from Harrier,
Inc. to COPE, Inc. and to reverse split its outstanding common stock on a
one for 58 basis;

. sold a controlling interest in its only subsidiary, Glycosyn
Pharmaceuticals, Inc., a Delaware corporation;

. divested itself of substantially all of its operations, assets and
liabilities on hand immediately prior to the reorganization; and

. issued 2,862,000 post-split shares of common stock to the shareholders of
COPE Holding AG in exchange for all of the issued and outstanding capital
shares of COPE Holding AG.

The shares issued to the shareholders of COPE Holding AG at the time of the
reorganization represented 91.4% of COPE's issued and outstanding capital stock.
Following the reorganization, the stockholders of COPE Holding AG became the
controlling stockholders of COPE's and COPE Holding AG became its wholly-owned
subsidiary. Kevin DeVito, one of COPE's current directors, was the President and
a director of COPE prior to its reorganization with COPE Holding AG.

COPE Holding AG was formed as a Swiss stock corporation in 1991 by Adrian Knapp
and Stephan Isenschmid under the name of COPE AG. On March 25, 1998, COPE AG
changed its name to COPE Holding AG. COPE Holding AG then founded a wholly-owned
subsidiary under the name of COPE AG and transferred substantially all of its
assets and liabilities to the newly-formed subsidiary as of the same date.

Unless the context otherwise requires, the term "COPE" refers to the Delaware
corporation known as COPE, Inc., its wholly-owned subsidiary, COPE Holding AG
and the wholly-owned subsidiaries of COPE Holding AG: COPE AG, a Swiss stock
corporation, COPE GmbH, a German stock corporation, COPE GesmbH, an Austrian
stock corporation, and Hicomp Software Systems GmbH, a German stock corporation.

Forum Acquisition

On June 25, 1998, COPE GmbH, a wholly-owned subsidiary of COPE Holding AG,
acquired all of the capital shares of Forum GmbH, a German data storage company,
for $962,977. The acquisition of Forum has been accounted for by the purchase
method of accounting, which means that COPE has reported at its cost the assets
of Forum, less its liabilities. The difference between the purchase price COPE
paid for Forum and the difference between the fair value of Forum's assets and
liabilities has been recorded by
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COPE as goodwill. Accordingly, the operating results of Forum have been included
in the consolidated operating results from the date of acquisition. On March 30,
1999, Forum was merged into COPE GmbH.

Hicomp Acquisition

On April 19, 1999, COPE, Inc. acquired Hicomp Software Systems GmbH, a German
software company. Based on the Sale and Assignment of Business Shares entered
into on December 21, 1998 between COPE, Inc. and Mr. Uwe Hinrichs, the president
and sole shareholder of Hicomp, COPE issued 420,000 shares of common stock in
exchange for all of the outstanding capital shares of Hicomp. COPE also granted
Mr. Hinrichs securities registration rights which allowed him to sell up to
200,000 shares of his common stock alongside COPE within the framework of a
secondary public offering to be conducted on the Frankfurt Stock Exchange,
"Neuer Markt". In October 1999, COPE agreed to repurchase from Mr. Hinrichs
200,000 of the common shares issued by COPE in the acquisition at a price of DEM
7,200,000 ($3,958,000) which fulfilled its obligations under the registration
rights. Hicomp, headquartered in Hamburg, Germany, develops back-up and
retrieval software products. Its leading products, Hiback and Hibars, are
multi-platform back-up solutions recognized for performance and flexibility.

The Hicomp acquisition has been accounted for under the purchase method of
accounting, which means that COPE has reported at its cost the assets of Hicomp,
less its liabilities. The difference between the purchase price COPE paid for
Hicomp and the difference between Hicomp's assets and liabilities has been
recorded by COPE as goodwill.

Public Offering

In February 2000, COPE conducted a public offering of 800,000 shares of its
common stock, at an offering price of Euro 21.00 ($20.54) per share on the
Frankfurt Stock Exchange, "Neuer Markt". The net proceeds in that offering were
approximately $14,200,000. COPE applied approximately $5,800,000 of the net
proceeds towards the repayment of indebtedness, including the repayment of
$767,521 and $314,090 in advances from COPE's Chairman of the Board, Adrian
Knapp, and COPE's President and Chief Executive Officer, Stephan Isenschmid,
respectively.

Proposed Merger of COPE and Mount10.com Holding AG

COPE, Inc. and Mount10.com Holding AG have entered into a letter of intent on
March 17, 2000 to merge their business activities. The proposed merger would
encompass a consolidation or "Verschmelzung" of COPE, Inc. and Mount10.com into
a new Swiss holding company. The parties expect that the new company will be
owned approximately 80% by the present COPE shareholders and approximately 20%
by the present Mount10.com shareholders. The merger proposal is subject to
approval of the directors and shareholders of both companies and relevant
authorities.

Mount10.com is engaged in the business of protecting strategic data from
manipulation, loss unauthorized access and damage by external or hostile groups
and individuals. Mount10.com operates its own data center in a high-security,
inviolable underground vault. The vault is located in the heart of the Swiss
Alps and embedded in an operational defense force facility. The vault is able
to withstand all known risks to the security of the customers' data during peace
and times of war. COPE's Chairman of the Board, Adrian Knapp, and President and
Chief Executive Officer, Stephan Isenschmid, each own approximately 16.3% of
Mount10.com.
<PAGE>

Business of COPE

General

COPE is a provider of enterprise data storage and security consulting, services,
software and solutions in the fields of data storage to customers located
primarily in Western Europe. COPE's data storage and security business consists
of the analysis, design and implementation of storage and security systems that
integrate the software and hardware products that best meet the identified
objective. In the first quarter of 2000, COPE commenced the provision of
consulting, services and solutions to the e-platform industry, including the
design, development and operation of application infrastructure and managed web
sites.

COPE generates revenue in the data storage and security business from three
primary sources:

. providing consulting services in connection with the initial analysis
of a client's data storage or security needs and the designing of a
system best suited to meet those needs;

. the sale and implementation of the desired solution; and

. providing installation, integration and maintenance of the system,
including improvements and additions to the system to keep pace with
the clients' changing needs and improvements in technology.

COPE generally provides its data storage and security systems on a turn-key
basis and purchases for resale the hardware and software components made part of
its systems solutions. COPE resells software and hardware products offered by
the major vendors in the data storage and security industry, including:

Advanced Digital Information
Compaq Computer
Data General
IBM
Legato Systems
Overland Data
Storage Technology
Sun Microsystems
Veritas Software
Hewlett Packard

The vendors set forth above represent all of COPE's vendors that individually
account for at least 2% of COPE's 1999 revenue from the sale of hardware and
software products. These vendors as a group contributed to approximately 54% of
COPE's 1999 revenue from the sale of hardware and software products.

Following its acquisition of Hicomp Software Systems GmbH on April 19, 1999,
COPE also offers its own proprietary storage software products, Hiback and
Hibars. COPE provides most of its information consulting, services and solutions
to companies in the financial, insurance, pharmaceutical and telecommunication
industries located in Germany, Switzerland, and Austria.

Development of COPE

COPE commenced operations in 1991 as a provider of data storage subsystems to
the Swiss market. In the European market at that time, computer manufacturers
were not directing significant corporate resources into data storage. This
opportunity allowed COPE to immediately enter the market with a competitive mix
of quality products suitable for customized internal and external data storage
applications. In early 1993, COPE began to study the redundant array of
inexpensive disk-drives storage technologies and began designing corresponding
solutions for its clients. In the fall of 1993, the first family of redundant
array of
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inexpensive disk-drives systems was introduced by COPE to the Swiss market. In
1994, COPE signed a distribution agreement with Data General providing for
COPE's distribution of Data General's Open CLARiiON systems. This represented
COPE's first reseller agreement. In the following years, COPE entered into
distribution agreements with additional vendors of storage and security
products. In December 1998, COPE entered into a distributor agreement with EMC
Corp, the recognized world leader in the development of software for the
enterprise data storage and security industry. In December 1999, COPE entered
into a distributorn agreement with Procom Technology, Inc.pursuant to which COPE
is an authorized reseller of the full line of Procom's network attached storage
appliances.

In 1994, COPE began to market its services and systems in Austria. In late 1995,
COPE commenced operations in Germany. In the same year, COPE became one of the
first information technology companies in Europe to obtain an ISO9001
certification. In June 1998, COPE expanded its operations in Germany through its
acquisition of Forum GmbH, a provider of data storage and security services and
solutions to the German market. In April 1999, COPE acquired its first
proprietary product through its acquisition of Hicomp Software Systems GmbH, a
Hamburg, Germany based developer of back-up software, marketed under the
trademarks Hiback and Hibars.

Data Storage Industry Overview

High availability of stored enterprise data is a critical factor in the new
economy. To reduce costs, improve productivity and improve customer service,
large organizations are streamlining their processes by implementing strategic
solutions, such as databases, financial applications and electronic mail
systems, to manage their data. To be competitive, clients need immediate access
to necessary data, regardless of where it is stored. Without this access,
productivity suffers and the cost of doing business escalates. Providing
reliable access to this data on an enterprise-wide basis presents a significant
challenge to large organizations.

The difficulty of this challenge is compounded by a number of recent trends in
enterprise computing. In recent years, there has been a significant migration to
client/server and network computing. Today's networks are much larger and more
complex than early networks, often consisting of multiple servers, including
application servers, file servers, database servers and communications servers,
and hundreds or even thousands of personal computers manufactured by a number of
different vendors. These servers and personal computers may utilize a number of
different operating systems, including Unix, Novell NetWare, IBM OS/2 Warp,
Windows NT, Windows 98, Windows 95, Windows 3.1 and Macintosh OS. The
distributed and heterogeneous nature of these networks, together with the
increased use of computers throughout organizations to create and store files,
has resulted in an increase in the amount and dispersion of critical data across
the servers and personal computers.

The increase in the size of networks has been accompanied by concurrent
increases in the size and complexity of computer data and files. Application
software developers continue to introduce software packages that increasingly
incorporate features which require large amounts of storage, such as graphics,
video and sound. For example, a minute of uncompressed full motion video and
sound could require approximately 1,100 megabytes of storage as compared to 300
kilobytes for the average 10 page document. Similarly, the size and complexity
of images stored and manipulated using document imaging systems have intensified
network storage requirements. Further, the increasing popularity of the internet
as a means of communication and a medium by which to access and distribute
information has contributed to the demand for increased storage, as users
download a wide variety of complex data from the internet.

To meet the challenges of managing the storage of increasing volumes of
enterprise data in increasingly heterogeneous systems with fewer resources, a
storage management system must incorporate a number of critical features
including:

. full automated backup and restore capability;
<PAGE>

. ready data in the event of system failure in order to avoid
interruptions of day-to-day operations;

. scalability to accommodate rapid growth in the volume of on-line
data and the complexity of the network;

. centralized and automated management to enable the administrator to
manage the entire system, including local and remote storage
systems, from a single central console; and

. support for heterogeneous environments.

In response to the increased demand for cost-effective storage of different
types of information, a variety of storage media have been developed, including
magnetic tape, hard disk, redundant array of inexpensive disk-drives, CD-ROM and
others.

Magnetic tape is the least expensive storage medium, but has the slowest access
times. Magnetic tape is ideal for backing up large amounts of information that
is only expected to be accessed infrequently. This cost effective technique is
widely used in commercial entities and government organizations in cases where
it is desirable to archive large amounts of data in a secure offsite location as
a safeguard against on-site disasters. Often times, the magnetic tapes are
arranged in automated tape libraries for purposes of providing for multiple
operating drives capable of conducting simultaneous functions, including backup,
data management and access.

Hard disk storage is a popular means of storing and accessing large amounts of
information that is continually changing. It also provides rapid access times
but is a relatively expensive storage medium and is easily erased. Redundant
array of inexpensive disk-drives storage systems have developed in response to
demand for increased data storage, performance, security, reliability, fault
tolerance and availability, as well as for constant access. Redundant array of
inexpensive disk-drives is a method for allocating data across several hard disk
drives and allowing a server microprocessor to access those drives
simultaneously, thus increasing system storage and input/output performance. In
addition, lost data on any drive can be recreated using special redundant array
of inexpensive disk-drives algorithms, thus ensuring the immediate availability
of redundant array of inexpensive disk-drives protected data even in the event
of a disk drive failure.

CD-ROM and DVD-ROM technology emerged in the early 1980's and 1990's,
respectively, as a cost-effective method by which to store and distribute large
amounts of information. Since CD-ROMs or DVD-ROMs cannot be erased or written
over for mass data storage, however, they are not suitable for storage
situations in which information must be continually updated and altered.
However, for organizations that require periodic distribution of written
material, such as reference books, parts lists, catalogues or manuals, CD-ROMs
and DVD-ROMs are much more cost-effective and practical than paper-based
documents. The proliferation of network computing and the rapid increase in CD-
ROMs as a means of information distribution and storage have fueled demand for
CD-ROM systems that provide network-wide access.

The increase in the importance and volume of stored, complex data has increased
demand for secure and reliable methods of storage that allow for efficient and
cost-effective protection and management of this data. These factors have also
increased demand for total storage solutions that can quickly and efficiently
provide access to large volumes of data resident on a variety of client
computers and servers running different operating environments, as well as data
generated by a wide range of applications. In addition, users are increasingly
demanding solutions comprised of not only hardware for cost-effective storage of
and access to large amounts of secure and reliable information, but also
software that manages information flow and reduces the high costs of network
storage administration.
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The COPE Solution

In today's business environment, the best storage or security solution most
often requires a combination of storage media and a mixture of hardware and
software products from multiple vendors. The challenge to a system designer is
the ability to identify and then integrate the specific software and hardware
products best suited to meet the clients' needs.

COPE believes that the major product vendors in the data storage industry are
naturally predisposed to selling the client a solution that is based on the
vendor's own product line. On the other hand, COPE endeavors to operate as an
independent provider of enterprise data storage and security systems and
solutions. Although COPE now offers a limited line of proprietary storage
software following its acquisition of Hicomp, COPE is committed to offering its
clients a storage solution based on a mix of the software and hardware products
that best meet the identified objectives regardless of manufacturer. COPE
believes that its willingness and ability to provide an integrated approach to
its clients' storage problems provides its clients with a better solution and
COPE with a competitive advantage over the vendors with whom it competes for the
design and sale of storage solutions.

In order to provide its customers with the best available solution, COPE has
divided its operations between consulting, solution sales and integration
services. A client engagement begins with the appointment of a team from COPE's
consulting division. As of March 27, 2000, COPE employed 12 professionals in its
consulting division, each of whom is a trained engineer with a complete
understanding of the products and technologies offered in the data storage
industry. COPE initially analyzes the client's storage needs and arrives at
certain conceptual solutions. The engineers then work with the client to develop
performance-cost comparisons, feasibility studies and capital budgeting for each
conceptual solution. Through this process a recommendation is made to the client
for the implementation of a storage and security solution. Typically, the
recommendation will involve a storage system sold and installed by COPE.
However, COPE's consultants are encouraged to offer the client the best
solution, even if it does not include the sale of a system by COPE.

If the consulting division recommends a COPE storage or security system, COPE
will bring to the client a team from the solution sales department. As of March
27, 2000, COPE's solution sales division consisted of 55 professionals,
including 25 sales representatives and 30 engineers, and a 9 person
administration and support staff. A team typically consists of one or more sales
representatives and engineers. A project manager will act as the liaison between
the client and COPE's production departments.

Once the optimal solution is selected, COPE's integration services department
provides on-site integration. The integration services department also offers
the client operations and maintenance support on an interim and long-term basis.
As of March 27, 2000, this department consisted of 18 employees.

COPE's Strategy

COPE's goal is to become the leading independent provider of enterprise data
storage and security services and solutions as well as e-solutions in Western
Europe. The key elements of COPE's strategy are:

. Continue to Emphasize Consulting Services. COPE intends to continue
the emphasis of its provision of consulting services in the area of data storage
and security. COPE believes that in the enterprise data storage market the key
is oftentimes the "solution" and not the product. COPE believes that a
significant amount of the client's cost in a storage solution is spent on
consulting services associated with the design and implementation of the system,
the remainder representing the costs of the associated software and hardware
products. The consulting services often involve higher margins than the sale of
the products, even in the case of direct sales to the client by the
manufacturer/vendor. By emphasizing the quality of its consulting services, COPE
believes that it can establish and foster a reputation in Western Europe as a
leading provider of enterprise services and solutions.
<PAGE>

. Foster a Reputation for Independence. COPE's major competitors are
either manufacturers or developers of hardware and software products or large
consulting firms that offer a wide array of consulting and advisory services to
business. COPE intends to foster the reputation and image in the storage and
security industry of an independent organization firm dedicated to providing
storage and security services and solutions to the enterprise data storage
market. Most of the customers for storage and security systems are large
corporations and institutions with sophisticated information technology
operations. COPE believes that most information technology officers appreciate
and value COPE's expertise and ability to offer solutions and consulting
services unhindered by any bias to a particular product or vendor.

. Expand Through Targeted Acquisitions. COPE believes that the
enterprise data storage market consists of the manufacturers/developers of the
storage products and the international consulting firms, on the one hand, and a
number of smaller independent providers of consulting services and solutions,
including COPE, on the other hand. In addition to the pursuit of organic growth,
COPE intends to aggressively seek out and acquire high quality independent
consulting firms throughout Western Europe. COPE believes that there are a
number of smaller independent firms in strategic European markets that share
COPE's commitment to providing high quality consulting and services to the
enterprise data storage market. Through the pursuit of strategic acquisitions,
COPE hopes to acquire existing sale and engineering staffs with established
contacts and client bases in key markets.

. Leverage off its Core Competence to Develop an E-Platform Solution.
COPE has a unique standing in Central Europe due to its experience and
reputation in the date storage industry. Data storage and security are key
elements in the Internet age and COPE's core competence in this area provides it
with an advantage in designing, developing and operating application
infrastructure and managed web sites. COPE intends to leverage off it
reputation and success in the data storage and security industry to develop and
market an e-platform solution to its clientele.

Products and Services

COPE's principal operations consist of the design, implementation and management
of storage and security systems that provide flexible and cost effective data
storage and security solutions on a turn-key basis. In addition to providing
turn-key data storage systems, COPE also provides its clients consulting,
training and integration services. In 1999, approximately $5,940,668 (or 18.4%)
of COPE's $32,361,504 in revenue represented consulting fees unrelated to sales
of storage data systems. COPE intends to increase its marketing efforts in the
area of stand-alone consulting services and expects that consulting revenues
will in the future increase as a percentage of overall revenue.

COPE is a reseller of a number of software and hardware products to its
customers, including back-up and system management software, tape libraries,
redundant arrays of inexpensive disc drives, servers, and numerous other
products related to the installation and utilization of data storage and
security technology. In keeping with industry practice, the agreements between
COPE and its product vendors are nonexclusive and short-term in nature. The
following table sets forth the major vendors with which COPE works in various
selling partnerships, the vendor's products resold by COPE and the amount of
COPE's revenue from the sale of hardware and software products during fiscal
1999 represented by each vendor:

Company Product % of Product
Revenue
<S> <C> <C>
Advanced Digital Information Corp. Tape Libraries 10%
IBM Servers 9%
Storage Technology Corp. Tape Libraries 8%
Legato Systems Back-up and Archiving Software 7%
Data General--CLARiiON Business Unit CLARiiON Disk Arrays 5%
</TABLE>
<PAGE>

<TABLE>
<S> <C> <C>
Veritas Software Data Management, Failure, Backup 4%
and Archiving Software
Compaq Computer/Digital Equipment Servers and Storage Products 4%
Sun Microsystems Servers 3%
Hewlett Packard Media Libraries 2%
Overland Data Tape Libraries 2%
</TABLE>

Consulting and Services Division. COPE's consulting division offers services
such as analyses, conceptual solutions, target-performance comparisons, quantity
structures, feasibility studies, capital budgeting and return on investment
calculations, as well as project management and user training. In addition to
training and education, the COPE service division implements and maintains data
management plans recommended by the consulting division. COPE system engineers
are certified experts by strategic partners such as IBM, SUN, Legato, Veritas,
Microsoft and others. This division contracts directly with the end-user to
maintain systems and manage the plan.

Hiback and Hibars. In April 1999, COPE acquired Hicomp Software Systems GmbH,
a developer of enterprise data storage software. Through its acquisition of
Hicomp, COPE is now able to offer its own proprietary line of software products
designed to provide storage capabilities to multi-platform enterprises. The
products are Hiback, backup software which is installed on desktop clients, and
Hibars, automated data management software which is installed on the backup
server. COPE believes that the Hiback and Hibars products offer a superior
storage solution to multi-platform enterprises which require superior speed in
performing backup storage.

Sales and Marketing

COPE markets its data storage and security consulting, services and solutions
primarily through its field sales organization complemented by other sales
channels, including systems integrators, product vendors, and international
distributors.

As of March 27, 2000, COPE's field sales force consisted of 25 sales
representatives and 30 engineers that provide technical assistance for systems
sales. COPE currently has five sales offices, most of which are staffed with
both sales and technical personnel. COPE uses a consultative sales approach for
selling to major accounts. This model entails the collaboration of technical and
sales personnel, typically in a one-to-one ratio, to formulate proposals that
address the specific requirements of the customer. COPE focuses its initial
sales efforts on senior information technology department personnel, and works
closely with system and network administrators for evaluation and deployment.
COPE also maintains comprehensive after-sales and customer care activities
covering all aspects of support, systems tuning and follow-up.

Competition

The data storage and security and e-platform markets are intensely competitive,
highly fragmented and characterized by rapidly changing technology and evolving
standards. Competitors vary in size and in the scope and breadth of the products
and services offered. COPE's major competitors in the data storage and security
market are vendors of information management software and hardware products,
including Hewlett Packard, EMC Corp., Storage Technology, Unisys Corp. and
Compaq Computer Corp., some of whom are also significant suppliers of COPE.
COPE's major competitors in the e-platform market are managed web host
providers such as Digex and Data Return. In addition, COPE experiences
significant competition from other independent consulting and engineering firms.

Many of COPE's current and potential competitors have significantly greater
financial, technical, marketing and other resources than COPE. As a result, they
may be able to respond more quickly to new or emerging technologies and changes
in customer requirements, or, in the case of vendors, to devote greater
resources to the development, promotion, sale and support of their products than
COPE. COPE also
<PAGE>

expects that competition will increase as a result of future software industry
consolidations, which have occurred in the information technology market in the
past. In addition, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. There can be no
assurance that COPE will be able to compete successfully against current or
future competitors or that competitive pressures faced by COPE will not
materially adversely affect its business, operating results or financial
condition.

In addition to competition for client contracts, COPE also competes for
qualified technical engineers and consultants. COPE's future success depends in
significant part upon the continued service of its key technical personnel and
its continuing ability to attract and retain highly qualified technical
engineers and consultants. Competition for this personnel is intense, and there
can be no assurance that COPE can retain its key technical and managerial
employees or that it can attract and retain other highly qualified technical
personnel in the future.

Employees

As of March 27, 2000, COPE had a total of 120 employees. Of the total, 12 were
in consulting, 55 were in solution sales, 18 in integration services, and 35
were in back-office operations such as general management, finance, human
resources and administration. None of COPE's employees are represented by a
labor union or subject to a collective bargaining agreement. COPE has not
experienced any work stoppages and considers its relations with its employees to
be good.

Item 2. Properties

COPE's executive and sales offices are located in Rotkreuz, Switzerland and
consist of approximately 10,800 square feet of leased space. COPE leases this
space based on a written agreement expiring in March 2001, with an option to
extend for another five years, at the rate of $11,000 per month. COPE also
maintains the following sales offices:

Location Size Monthly Rental Rate
<S> <C> <C>
Munich, Germany 9,800 sq. ft. $7,300
Hamburg, Germany 6,600 sq. ft. $9,000
Dresden, Germany 1,600 sq. ft. $2,700
Vienna, Austria 2,000 sq. ft. $2,000
</TABLE>

Item 3. Litigation.

COPE is not a party to any material legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders.

There were no matters submitted to the security holders of COPE during the
fourth quarter of fiscal year 1999.
<PAGE>

Part II

Item 5. Market for Common Equity and Related Shareholder Matters.

Market for Common Stock. COPE's common stock trades on the NASDAQ National
Market System under the symbol "COPE." COPE's common stock also trades on the
Frankfurt Stock Exchange, "Neuer Markt" under the symbol "CVX ". The
following table shows the high and low last sale prices of COPE's common stock
for the periods indicated as reported by the NASDAQ. These quotations reflect
inter-dealer prices without retail markup, markdown or commission and may not
necessarily represent actual transactions. All share prices are adjusted to
reflect the one for 58 reverse split of the common stock effected in August
1998.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
1998
First quarter $10.88 $ 4.64
Second quarter $11.60 $ 6.38
Third quarter $12.63 $ 7.25
Fourth quarter $20.25 $10.37

1999
First quarter $41.00 $18.00
Second quarter $35.00 $24.25
Third quarter $35.00 $23.50
Fourth quarter $27.00 $18.00
</TABLE>

As of March 27, 2000, COPE had approximately ___ record holders of its
common stock.

Dividends. COPE has not paid any cash dividends since its inception and
does not contemplate paying dividends in the foreseeable future. It is
anticipated that earnings, if any, will be retained for the operation of the
COPE's business.

Recent Sales of Unregistered Securities. During the fiscal year ended
December 31, 1999, COPE sold unregistered shares of its common stock in the
following transactions:

A. In January 1999, COPE, granted to its employees options to purchase an
aggregate of 129,900 shares of common stock at exercise prices ranging from
$20.00 to $50.00 per share. The options were issued pursuant to Section 4(2) of
the 1933 Act. There was no underwriter involved in this issuance.

B. In April 1999, COPE issued 420,000 shares of common stock to Uwe
Hinrichs in exchange for all of the issued and outstanding shares of Hicomp
GmbH. The issuance was conducted pursuant to Section 4(2) of the 1933 Act. There
was no underwriter involved in this issuance.

C. In October 1999, COPE, issued 5,172 shares of common stock upon the
exercise of common stock purchase warrants. The issuance was conducted pursuant
to Regulation S under the 1933 Act. There was no underwriter involved in this
issuance.
<PAGE>

Item 5. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

This "Management's Discussion and Analysis of Financial Condition and Results
of Operations" should be read in conjunction with COPE's financial statements,
the notes to those statements and the other financial data included elsewhere in
this annual report. Some of the information in this section contains forward-
looking statements which involve risks and uncertainties. COPE's actual results
may differ materially from the results predicted by these forward-looking
statements due to various factors, including but not limited to those which are
discussed below and elsewhere in this annual report.

Overview

General. COPE is a provider of enterprise data storage and security
consulting, services, software and solutions to customers located primarily in
Western Europe. COPE's storage and security business consists of the analysis,
design and implementation of storage and security systems that integrate the
software and hardware products that best meet the identified objective. COPE
generally provides its data storage and security systems on a turn-key basis and
purchases for resale the software and hardware components made part of the
systems solutions.

COPE Reorganization. As more fully described in the section "Business
Development" on page 3, in September 1998 the predecessor management of COPE
completed a series of transactions by which COPE discontinued prior operations
and at the same time acquired COPE Holding AG. Following the reorganization of
COPE with COPE Holding AG, the former stockholders of COPE Holding AG owned
approximately 91.4% of the outstanding shares of the common stock of COPE. As a
result, COPE Holding AG was the accounting acquiror and COPE's acquisition of
COPE Holding AG has been accounted for as a reverse merger under the purchase
method. Accordingly, from an accounting standpoint, COPE Holding AG's equity is
carried forward as the equity of the combined entity and COPE Holding AG is
assumed to have acquired COPE. The assets and liabilities of COPE as they
existed immediately prior to the reorganization have been recorded at fair value
as required by the purchase method.

Forum Acquisition. On June 25, 1998, COPE GmbH, a wholly-owned subsidiary of
COPE Holding AG, acquired all of the capital shares of Forum GmbH, a German data
storage company, for $962,977. The acquisition of Forum has been accounted for
by the purchase method of accounting, which means that COPE has reported at its
cost the assets of Forum, less its liabilities. The difference between the
purchase price COPE paid for Forum and the difference between the fair value of
Forum's assets and liabilities has been recorded by COPE as goodwill.
Accordingly, the operating results of Forum have been included in the
consolidated operating results from the date of acquisition. On March 30, 1999,
Forum was merged into COPE GmbH.

Hicomp Acquisition. On April 19, 1999, COPE acquired Hicomp Software Systems
GmbH, a German software company. Based on the Sale and Assignment of Business
Shares entered into on December 21, 1998 between COPE and Mr. Uwe Hinrichs, the
president and sole shareholder of Hicomp, COPE issued 420,000 shares of common
stock in exchange for all of the outstanding capital shares of Hicomp. COPE
also granted Mr. Hinrichs securities registration rights which allowed him to
sell up to 200,000 shares of his common stock alongside COPE within the
framework of a secondary public offering on the Frankfurt Stock Exchange,
"Neuer Markt". In October 1999, COPE agreed to repurchase from Mr. Hinrichs
200,000 of the common shares issued by COPE in the acquisition at a price of DEM
7,200,000 ($3,958,000) which fulfilled its obligations under the registration
rights.

Currency Exchange Rates. COPE regularly enters into contracts payable in Swiss
Francs, German Marks, EURO and Austrian Schillings.
<PAGE>

Although COPE reports its results in US dollars, virtually all of its sales are
denominated in other currencies, primarily, Swiss Francs and German Marks and,
to a lesser extent, Austrian Schillings, and Euros. A significant amount of
COPE's cost of sales (i.e., hardware and software purchases) on the other hand,
are denominated in US Dollars. Consequently, COPE's cost of doing business is
directly affected by any changes in the exchange rate between the US Dollar, on
the one hand, and the Swiss Franc or German Mark, on the other hand. The
financial position and results of operations of COPE and its foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of COPE and its subsidiaries are translated at the
exchange rate in effect at each year-end. Income statement accounts are
translated at the average rate of exchange prevailing during the year.
Translation adjustments arising from differences in exchange rates from period
to period are included in the cumulative translation adjustment account in
stockholders' equity.

Results of Operations

Fiscal 1999 Compared to Fiscal 1998

Net Revenue. During the 1999 fiscal year, COPE had net revenue of $32,361,504,
which amounts to an increase of 11.4% over the net revenue of $29,059,150 during
1998 fiscal year. The increase in net revenue is due in part to the COPE's
acquisition of Hicomp. COPE acquired Hicomp on April 19, 1999 and Hicomp has
been included in the consolidated operating results for periods subsequent to
April 19, 1999. COPE believes that approximately $1,600,000 of the increase in
net revenue over the prior period is attributable to COPE's acquisition of
Hicomp.

Sales of solutions increased 4.0% during the 1999 fiscal year over the prior
year period reaching $26,420,836 in 1999 as compared to $25,411,976 in 1998.
Sales of solutions consists of revenue from the resale of hardware and software
components along with associated consulting services. The reason for the
increase in revenue from the sales of solutions is the integration of Hicomp.

Sales of services increased 62.9% during the 1999 fiscal year reaching
$5,940,668 as compared to $3,647,174 for the prior year. Sales of services
consists of revenue from stand-alone consulting and integration services. The
increase in revenue from the sale of services is the result of COPE's decision
to emphasize sales of services because of its potential higher profit margin and
the integration of Hicomp.

Cost of Sales. During fiscal year 1999, cost of sales increased by 5.1% to
$21,318,928 compared to $20,281,131 for the prior fiscal year, representing
80.7% and 79.8%, respectively, of the total revenue from the sale of solutions.
Cost of sales consists exclusively of the cost of software and hardware acquired
for resale. The increase in cost of sales as a percentage of revenue from the
sale of solutions is the result of an decrease in margin in the fourth quarter
in Germany due to a few large sales of solutions at low relatively low margins.

Gross Profit. COPE's gross profit margin for the 1999 fiscal year was 34.1%
compared to 30.2% for the prior fiscal year. The increase is primarily
attributable to the large internal growth in sales of services as a percentage
of total revenue and the integration of Hicomp.

Selling, General, Administrative and Consulting Expenses. COPE's selling,
general, administrative and consulting expenses as a percentage of net sales
increased in fiscal 1999 (37.0%) compared to the prior
<PAGE>

fiscal year (25.1%). The increase is primarily attributable to COPE's large
investment in research and development and sales and marketing for its newly
acquired software products, Hiback and Hibars, during the last six months of
fiscal 1999 and the hiring of additional personnel necessary to support the
growth in sales of services. In the first quarter of fiscal 1998, COPE reported
an impairment loss of $63,004 related to the write-down of an exclusive option
for the rights to purchase, develop and market a new technique for the automatic
storage of data.

Foreign Exchange Gain. During 1999 COPE realized a foreign exchange gain of
$340,977 relating to short-term borrowings in German marks.

Net Income/(Loss). During the 1999 fiscal year, COPE had a net loss of
$3,109,630 as compared to net income of $1,011,571 during the 1998 fiscal year.
The decrease in income is mainly attributable to the amortization of goodwill of
$2,298,288 involved with COPE's acquisition of Hicomp in April 1999 and Forum in
June 1998 and the increase in research and development, selling and marketing
expenses of approximately $800,000 during the last six months of fiscal 1999
relating to the Hiback and Hibars software products. Earnings before interest,
taxes, depreciation and amortization for the 1999 fiscal year was a negative
$598,018, which amounts to a decrease of $2,061,485 over earnings before
interest, taxes, depreciation and amortization of $1,463,467 for the 1998 fiscal
year. The decrease in earnings before interest, taxes, depreciation and
amortization between 1999 and 1998 is mainly due to the increase in research and
development, selling and marketing expenses of approximately $800,000 during the
last six months of fiscal 1999 relating to the Hiback and Hibars software
products. Earnings before interest, taxes, depreciation and amortization is
defined as net income plus the following:

. extraordinary items and cumulative effect of accounting change;

. provision for income taxes;

. interest expense; and

. depreciation and amortization.

Earnings before interest, taxes, depreciation and amortization is presented not
as an alternative measure of operating results or cash flow from operations as
determined in accordance with United States generally accepted accounting
principles, but because it is a widely accepted financial indicator of a
company's ability to incur and service debt.

Fiscal 1998 Compared to Fiscal 1997

Net Revenue. During the year ended December 31, 1998, COPE had net revenue of
$29,059,150, which amounts to an increase of 62.2% over the net revenue of
$17,916,171 during the prior year period. The increase in net revenue is due in
part to the consolidation of Forum, which was acquired on June 25, 1998 and has
been included in the consolidated operating results for the periods subsequent
to June 25, 1998. Forum had net revenue of $9,040,477 for the period June 25,
1998 through December 31, 1998. Without giving effect to the consolidation of
Forum, COPE had a 12% increase in net revenue during the year ended December 31,
1998 over the prior year period. The increase in non-Forum related revenue was
due to a general growth in operations.

Sales of solutions increased 53% during the year ended December 31, 1998 over
the prior year period reaching $25,411,976 as compared to $16,605,175 in 1997.
Sales of solutions consists of revenue from the resale of hardware and software
components along with associated consulting services. The principal reason for
the increase in sales of solutions is the acquisition of Forum. Without giving
effect to the consolidation of Forum, COPE had 3% increase in sales of solutions
during the year ended December 31, 1998 over the prior year period.

Sales of services increased 178.2% during the year ended December 31, 1998
reaching $3,647,174 as compared to $1,310,996 for the prior year period. Sales
of services consists of revenue from stand-alone consulting and integration
services. Without giving effect to the consolidation of Forum, COPE had a
<PAGE>

123% increase in sales of services during the year ended December 31, 1998 over
the prior year period. This increase is the result of COPE's decision to
emphasize sales of services because of its potential for higher profit margins.

Cost of Sales. During the year ended December 31, 1998, cost of sales
increased by 58.2% to $20,281,131 compared to $12,817,738 for the prior period,
representing 79.8% and 77.2% of the total revenues from the sale of solutions,
respectively. The cost of sales as a percentage of sale of solutions increased
during the year ended December 31, 1998 due to COPE's aggressive pursuit of
increased sales in the German market in 1998. In an effort to establish itself
in the German market, during 1998 COPE pursued low margin product sales. In
addition, because COPE was not then well established in the German market it was
not able to negotiate for the lowest prices from German suppliers. As noted
above, in the first half of 1999 COPE discontinued the aggressive pursuit of low
margin product sales in Germany and, at the same time, has been able to
negotiate for better prices from its suppliers. Cost of sales consists
exclusively of COPE's cost for the software and hardware acquired for resale as
part of its information systems solutions.

Gross Profit. COPE's gross profit margin for the year ended December 31, 1998
was 30.2% compared to 28.5% for the prior year period. The increase in gross
margin is due to COPE's strategy of emphasizing the sale of higher margin stand
alone consulting and integration services.

Selling, General, Administrative and Consulting Expenses. COPE's selling,
general, administrative and consulting expenses as a percentage of net sales
increased between the year ended December 31, 1998 (25.1%) and the prior year
period (24.2%). This trend is the consequence of COPE's strategy to increase
sales of services which required that COPE hire additional service and
consulting personnel.

Liquidity and Financial Condition

COPE's historical working capital requirements include the financing of all
costs involved in the design, implementation and sale of information systems.
COPE generally contracts to deliver information systems, including all hardware
and software, on a turn-key basis based on fixed price contracts. Consistent
with industry practice, COPE generally is not able to obtain significant up-
front or progress payments on its contracts providing for the design,
implementation and sale of information systems. Accordingly, COPE is generally
required to finance its clients' contracts, including the purchase of the
hardware and software components of the information systems. As of December 31,
1999, COPE had established short-term overdraft facilities under which COPE and
its subsidiaries could borrow up to $5,705,885. Amounts drawn down under these
facilities are due on demand and collateralized by the Company's investments in
Cope AG and Cope GmbH. COPE has been successful to date in securing extensions
on its lines for purposes of financing certain client contracts as needed,
however there can be no assurance that COPE will continue to do so in the
future.

As of December 31, 1999, COPE had a working capital deficit of approximately
$7,453,421, compared to a working capital position of $155,663 as of December
31, 1998. However, in February 2000 COPE completed a secondary public offering
of 800,000 common shares at Euro 21.00 ($20.54) per share on the Frankfurt Stock
Exchange, "Neuer Markt". The net proceeds in that offering were approximately
$14,200,000. During fiscal 1999, COPE supplemented its working capital with a
series of short term loans in the total aggregate amount of $3,700,000,
including an advance of $767,521 and $314,090 from COPE's Chairman of the Board,
Adrian Knapp and COPE's President and Chief Executive Officer Stephan
Isenschmid, respectively. COPE applied approximately $3,700,000 of the net
proceeds from its secondary pubic offering towards the repayment of the short
term loans and the repayment of $2,100,000 of bank indebtedness under its short-
term overdraft facilities.

COPE believes that the proceeds from its secondary public offering, together
with its existing capital resources, will be sufficient to meet its capital
requirements and finance its continued growth during fiscal
<PAGE>

year 2000. However, if its capital requirements vary materially from those
currently planned, COPE may require additional financing sooner than
anticipated. Additional financing may not be available when needed on terms
favorable to COPE or at all. In addition, as disclosed throughout the annual
report, COPE intends to conduct additional acquisitions in order to expand its
revenue base and product line. These acquisitions will undoubtedly require
significant additional capital. However, it is impossible to predict right now
how much capital COPE will need or when it will need it.

Year 2000 Issue

As of the date of this annual report, nothing has come to COPE's attention that
would indicate that any of its computer software applications, or those of its
information suppliers, are unable to operate accurately after January 1, 2000.
However, COPE has been advised that the consequences of a Year 2000 failure may
not become apparent for several weeks following January 1, 2000.

Forward Looking Statements

This annual report contains forward-looking statements that are based on COPE's
beliefs as well as assumptions made by and information currently available to
COPE. When used in this annual report, the words "believe," "expect,"
"anticipate," "estimate" and similar expressions are intended to identify
forward-looking statements. These statements are subject to those risks,
uncertainties and assumptions, including, but not limited to, risks associated
with: the management of a rapidly growing company; COPE's dependence on its
ability to resell hardware and software manufactured by third parties; the
reduction in net income over the next six years from the goodwill associated
with the Forum and Hicomp acquisitions; and possible disruptions to COPE's
established operations resulting from future acquisitions. These and other
risks and uncertainties are more fully described in the "Risk Factor" section
COPE's public offering prospectus dated February 9, 2000, a copy of which can be
obtained from the Public Reference Section of the Securities and Exchange
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. Copies are also available at no charge at the Commission
maintains a Web site, located at http://www.sec.gov. Should one or more of the
aforementioned risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated, or projected. COPE cautions its stockholders and
potential investors not to place undue reliance on any forward-looking
statements, all of which speak only as of the date made.
<PAGE>

Item 7. Financial Statements PAGE
----

Report of Independent Auditors F-1

Audited Financial Statements

Consolidated Balance Sheets as of December 31,
1999, 1998 and 1997 F-2

Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997 F-3

Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997 F-4

Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1999, 1998 and 1997 F-5

Notes to the Consolidated Financial Statements F-6

<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders of COPE, Inc.

We have audited the accompanying consolidated balance sheets of COPE, Inc. as
of December 31, 1999, 1998 and 1997, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
COPE, Inc. at December 31, 1999, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles in the U.S.

ATAG Ernst & Young Ltd.

Kevin McCabe Yves Vontobel
Chartered Accountant Certified Accountant

Zurich, Switzerland
April 13, 2000

F-1
<PAGE>

COPE, INC.

CONSOLIDATED BALANCE SHEETS
(Amounts in U.S. Dollars)

December 31,
-------------------------------------------------
1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
- ------------------------------------------------------------
Current assets
Cash and cash equivalents ................................ $ 653,906 $ 1,303,114 $ 678,936
Trade accounts receivable (net of provision of $0, $0, and
$0) ..................................................... 4,627,287 5,418,777 3,622,485
Inventories (net of provision of $201,107, $89,445 and $0) 2,111,519 2,433,790 1,383,191
Other current assets ..................................... Note 5 668,756 450,013 179,361
----------- ----------- ----------
Total current assets .................................. 8,061,468 9,605,694 5,863,973
----------- ----------- ----------
Property, plant and equipment, net ....................... Note 6 1,283,487 751,235 570,475
Loans receivable from related party ...................... Note 13 550,361 635,700 355,161
Loans receivable, other .................................. 0 26,350 39,245
Goodwill (net of amortization of $2,367,866, $69,578 and
$1,757) Note 4 14,228,210 938,788 0
Intangible assets ........................................ 81,687 88,385 125,631
Deferred income taxes .................................... Note 11 823,972 592,495 309,652
Deferred capital transactions costs ...................... Note 7 1,264,237 0 138,821
----------- ----------- ----------
18,231,954 3,032,953 1,538,985
----------- ----------- ----------
Total assets .......................................... $26,293,422 $12,638,647 $7,402,958
=========== =========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------

Current liabilities
Short-term borrowings .................................... Note 8 $ 4,482,832 $ 2,385,303 $ 661,982
Trade accounts payable ................................... 6,730,851 5,650,422 3,027,118
Loans payable to related parties ........................ Note 13 1,081,611 0 97,984
Loans payable, other 628,180 0 0
Customer advances ........................................ 0 216,558 704,915
Other current liabilities ................................ Note 10 2,339,600 802,384 389,639
Current income taxes payable ............................. 155,475 179,012 49,349
Deferred income taxes .................................... Note 11 96,340 216,352 211,046
----------- ----------- ----------
Total current liabilities ............................. 15,514,889 9,450,031 5,142,033
----------- ----------- ----------
Commitments and contingent liabilities ................... Note 15

Shareholders' equity
Share capital:
Common stock, $0.001 par value
Authorized shares 30,000,000 (30,000,000 in 1998,
2,862,000 in 1997)
Issued and outstanding shares 3,405,423 (3,152,861 in
1998, 2,862,000 in 1997) ............................... 3,405 3,153 2,862
Additional paid in capital ............................... 11,420,355 506,031 767,785
Accumulated other comprehensive income/(loss)..............
Cumulative translation adjustment ...................... (183,177) 31,852 (145,731)
Retained earnings/(deficit) .............................. (462,050) 2,647,580 1,636,009
----------- ----------- ----------
Total shareholders' equity ............................ 10,778,533 3,188,616 2,260,925
----------- ----------- ----------
Total liabilities and shareholders' equity ............ $26,293,422 $12,638,647 $7,402,958
=========== =========== ==========
</TABLE>

See notes to the consolidated financials statements

F-2
<PAGE>

COPE, INC.

CONSOLIDATED STATEMENTS OF INCOME

For the Years December 31, 1999, 1998 and 1997
(Amounts in U.S. Dollars, except share amounts)

<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ----------------- -----------------
<S> <C> <C> <C>
Net Revenue
Sales of solutions ................................ $ 26,420,836 $ 25,411,976 $ 16,605,175
Sales of services ................................. 5,940,668 3,647,174 1,310,996
------------ ------------ ------------
Total revenue ..................................... 32,361,504 29,059,150 17,916,171
Cost of sales ..................................... (21,318,928) (20,281,131) (12,817,738)
------------ ------------ ------------
Gross profit ...................................... 11,042,576 8,778,019 5,098,433
------------ ------------ ------------
Operating expenses
Selling, general and administrative expenses .... (11,341,487) (6,992,971) (4,205,093)
Consultancy expenses ............................ (645,084) (292,689) (131,723)
Depreciation .................................... (436,444) (224,375) (219,823)
Impairment of intangible assets ................. 0 (63,004) 0
Amortization of goodwill and other
intangible assets............................... (2,298,288) (112,561) (540)
------------ ------------ ------------
Total operating expenses .......................... (14,721,303) (7,685,600) (4,557,179)
------------ ------------ ------------
Operating income/(loss) ........................... (3,678,727) 1,092,419 541,254
Other income (expense):
Interest expense ................................ (195,217) (127,028) (76,197)
Interest expense to related party.............. (14,263) 0 0
Interest income ................................. 36,179 6,769 704
Interest income from related party .............. 36,033 19,929 0
Other ........................................... 5,000 30,786 (270)
Foreign exchange gain ........................... 340,977 3,326 38,716
------------ ------------ ------------
208,709 (66,218) (37,047)
------------ ------------ ------------
Earnings/(loss) before taxes ........ (3,470,018) 1,026,201 504,207
Current income taxes .............................. (34,711) (158,141) (34,076)
Deferred income taxes ............................. 395,099 143,511 162,766
------------ ------------ ------------
Net income/(loss) ................................. $ (3,109,630) $ 1,011,571 $ 632,897
============ ============ ============
Basic earnings/(loss) per share ................... $ (0.91) $ 0.34 $ 0.23
Diluted earnings/(loss) per share ................. $ (0.91) $ 0.34 $ 0.23

Weighted average shares outstanding ............... 3,417,589 2,936,589 2,740,833
Dilutive effect of stock options .................. 0 12,120 0
------------ ------------ ------------
Diluted average shares outstanding ................ 3,417,589 2,948,709 2,740,833
------------ ------------ ------------
</TABLE>

See notes to the consolidated financials statements

F-3
<PAGE>

COPE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 1999, 1998 and 1997
(Amounts in U.S. Dollars)

<TABLE>
<CAPTION>
1999 1998 1997
-------------- ---------------- -------------
<S> <C> <C> <C>
Cash flow provided by operating activities
Net income/(loss) $(3,109,630) $ 1,011,571 $ 632,897
Adjustment to reconcile net income to net cash provided by operating
activities
Depreciation ....................................................... 436,444 224,375 219,823
Amortization ....................................................... 2,298,288 175,565 540
Deferred income taxes .............................................. (395,099) (143,511) (162,766)
Gain on disposal of fixed assets ................................... (15,314) (2,284) 0
Effects of changes in operating assets and liabilities excluding effects
of business acquired
Accounts receivable ................................................ 261,898 1,050,835 (1,530,889)
Inventories ........................................................ 73,306 144,251 (488,492)
Other current assets ............................................... (115,401) 160,857 (226,326)
Accounts payable ................................................... 1,232,494 (2,009,336) 736,413
Customer advances .................................................. (198,271) 0 704,915
Other current liabilities .......................................... 792,669 112,986 404,820
----------- ----------- -----------
Net cash flow provided by operating activities ....................... 1,261,384 725,309 290,935

Cash flow used in investing activities
Purchase of property, plant and equipment .......................... (1,372,771) (370,208) (585,881)
Loans receivable ................................................... 5,986 (38,216) (394,406)
Purchase of intangible assets ...................................... 0 0 (80,138)
Proceeds from sale of property, plant and equipment ................ 24,728 5,249 4,653
Acquisition of businesses/net of cash acquired ..................... (171,330) 437,002 0
----------- ----------- -----------
Net cash flow used by investing activities ........................... (1,513,387) 33,827 (1,055,772)
Cash flow used (provided) by financing activities
Issuance of capital stock .......................................... 290,176 152,320 694,311
Repurchase of common stock .......................................... (3,958,000) 0 0
Increase of short term borrowings .................................. 3,154,281 24,191 502,770
COPE reorganization ................................................ 0 (371,112) 0
----------- ----------- -----------
Net cash flow used (provided) by financing activities ................ (513,543) (194,601) 1,197,081
Effect of exchange rate changes on cash .............................. 116,338 59,643 (15,355)
Net increase (decrease) of cash and cash equivalents ................. (649,208) 624,178 416,889
Cash and cash equivalents at beginning of the period ................. 1,303,114 678,936 262,047
----------- ----------- -----------
Cash and cash equivalents at end of the period ....................... $ 653,906 $ 1,303,114 $ 678,936
=========== =========== ===========
Supplemental cash flow disclosure
Interest paid ...................................................... $ 195,217 $ 127,028 $ 76,197
Income taxes paid .................................................. 53,223 32,478 22,643
Noncash investing and financing activities
Short-term borrowings, assumed in acquisition of business ....... 132,652 956,543 0
Short-term borrowings, incurred to effect acquisition of 0
business ...................................................... 624,324 0
Cash acquired in acquisition ....................................... 0 939,002 0
</TABLE>

F-4
<PAGE>

COPE, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

As of December 31, 1999, 1998 and 1997
(Amounts in U.S. Dollars, except share amounts)

<TABLE>
<CAPTION> Retained Accumulated other Total
Number Share Additional earnings comprehensive shareholders
of shares capital paid in capital (deficit) income/(loss) equity
---------- -------- ---------------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997, as
restated (1)........................ 2,700,000 $2,700 $73,636 $1,003,112 $(74,420) $1,005,028
Net income ........................... 632,897 632,897
Foreign currency translation
adjustments ....................... (71,311) (71,311)
-----------
Total comprehensive income ........... 561,586
-----------
Issuance of share capital ............ 162,000 162 694,149 694,311
--------- ------ ----------- ------------ --------- -----------
Balance at December 31, 1997 ......... 2,862,000 2,862 767,785 1,636,009 (145,731) 2,260,925
--------- ------ ----------- ------------ --------- ----------

Net income ........................... 1,011,571 1,011,571
Foreign currency translation
adjustments ....................... 177,583 177,583
-----------
Total comprehensive income ........... 1,189,154
-----------
COPE Reorganization .................. 270,654 271 (414,054) (413,783)

Common stock issued upon exercise of
stock options and warrants.......... 20,207 20 152,300 152,320
--------- ------ ----------- ------------ --------- -----------
Balance at December 31, 1998 ......... 3,152,861 3,153 506,031 2,647,580 31,852 3,188,616
--------- ------ ----------- ------------ --------- -----------

Net loss............................... (3,109,630) (3,109,630)

Foreign currency translation
adjustments......................... (215,029) (215,029)
-----------
Total comprehensive income/(loss)...... (3,324,659)
-----------

Issuance of share capital.............. 420,000 420 14,581,980 14,582,400
Repurchase and retirement of common
stock.............................. (200,000) (200) (3,957,800) (3,958,000)
Common stock issued upon exercise of
stock options and warrants.......... 32,562 32 290,144 290,176
--------- ------ ----------- ------------ --------- -------------
Balance at December 31, 1999........... 3,405,423 $3,405 $11,420,355 $ (462,050) $(183,177) $ 10,778,533
--------- ------ ----------- ------------ --------- -----------
</TABLE>
- ----------------
(1) Share capital and additional paid in capital have been retroactively
restated to give effect to the COPE Reorganization (see Note 2 to the
consolidated financial statements)

F-5
<PAGE>

COPE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999, 1998 and 1997

Note 1--Basis of Presentation

The accompanying consolidated financial statements present the consolidated
operations of COPE, Inc., a Delaware corporation formerly known as Harrier,
Inc., and its wholly-owned subsidiaries (collectively hereinafter referred to as
the "Company"). The accompanying consolidated financial statements have been
prepared in accordance with United States generally accepted accounting
principles ("U.S. GAAP").

Nature of Operations

The Company is a Swiss-based provider of data storage consulting, services
and solutions. The Company's main corporate offices located in Rotkreuz,
Switzerland. The Company also conducts business in Germany and Austria.

Note 2--Reorganization

On September 11, 1998, the shareholders of the Company approved a series of
transactions (referred to as the "COPE Reorganization") undertaken pursuant to
an Amended and Restated Securities Purchase Agreement and Plan of Reorganization
dated July 24, 1998 ("Reorganization Agreement") by and among the Company,
COPE Holding AG, a Swiss corporation, and the shareholders of COPE Holding AG
("COPE Shareholders"), as described below.

On September 11, 1998, the Company filed a Certificate of Amendment to its
Certificate of Incorporation in order to change its name from Harrier, Inc. to
COPE, Inc. and to affect a 1 for 58 reverse split of its outstanding common
stock. As a result of the reverse split, the shares of common stock of the
Company outstanding immediately prior to the COPE Reorganization were reduced to
approximately 270,654 shares.

Pursuant to the Reorganization Agreement, on September 25, 1998, the Company
issued 2,862,000 shares (post-split) of its common stock in exchange for all of
the outstanding capital shares of COPE Holding AG. At the completion of the COPE
Reorganization, the Company had approximately 3,132,634 shares (post-split) of
its common stock outstanding, approximately 91.4% of which were held by the
former COPE Holding AG shareholders.

Also on September 25, 1998, and immediately prior to the Company's issuance of
2,862,000 shares (post-split) of its common stock in exchange for all of the
outstanding capital shares of COPE Holding AG, the Company consummated the
transactions under that certain Common Stock Purchase Agreement dated September
11, 1998 between the Company and New Capital Investment Fund, a Cayman Islands
Investment Fund ("NCIF"), and that certain Assignment and Assumption Agreement
dated September 11, 1998 between the Company and Glycosyn Pharmaceuticals, Inc.,
a Delaware corporation ("Glycosyn") (collectively, the "Glycosyn
Agreements"). Pursuant to the terms of the Glycosyn Agreements, NCIF purchased
from the Company 2,850,000 shares of the common stock of the Company's
subsidiary, Glycosyn, in consideration of NCIF's cancellation of all of the
indebtedness owed to it by the Company ($610,167 as of March 31, 1998), and
Glycosyn acquired all of the assets and assumed all of the liabilities

F-6
<PAGE>

COPE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

of the Company as they existed immediately prior to the consummation of the COPE
Reorganization on September 25, 1998.

Since the COPE Shareholders owned approximately 91.4% of the outstanding
shares of the common stock of the Company after giving effect to the COPE
Reorganization, COPE Holding AG was deemed the accounting acquirer and the
Company's acquisition of COPE Holding AG has been accounted for as a reverse
merger under the purchase method. Accordingly, from an accounting standpoint,
COPE Holding AG's equity is carried forward as the equity of the combined
entity. COPE Holding AG is assumed to have acquired the Company and therefore
the assets and liabilities of the Company as they existed immediately prior to
the consummation of the COPE Reorganization, after giving effect to the
consummation of the transactions under the Glycosyn Agreements, have been
recorded at fair value as required by the purchase method. This adjustment
reflects the elimination of the Company's equity and accumulated deficit.

Prior to the COPE Reorganization, COPE Holding AG had 1,060 shares of capital
stock issued and outstanding. As a result of the COPE Reorganization, the COPE
Shareholders were issued 2,862,000 shares of the Company's common stock in
exchange for all of the outstanding capital shares of COPE Holding AG. In
effect, for accounting purposes, the COPE Shareholders received a 2,700 to 1
split of their shares since COPE Holding AG was deemed to be the accounting
acquirer. Shareholders' equity and earnings per share amounts have been
retroactively restated for the equivalent number of shares received by COPE
Holding AG as a result of the COPE Reorganization. Differences between the par
value of capital stock of COPE Holding AG outstanding prior to the COPE
Reorganization and the par value of the Company's common stock subsequent to
completion of the COPE Reorganization have been recorded against paid-in
capital.

On October 1, 1998, the Company determined that it would change its fiscal
year end from June 30 to December 31, the fiscal year end of COPE Holding AG.

Note 3--Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
COPE, Inc. and its wholly owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.

Significant Estimates

The preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the periods. Actual results could differ from these estimates.

F-7
<PAGE>

COPE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Revenue Recognition

Consulting revenue is recognized at the time of delivery of the service.

Revenue from the sale of hardware and related software is recognized at the
time of acceptance by the customer, generally after installation at a customer's
site. Revenue from certain customer-installable products is recognized at the
time of shipment.

End users of equipment sold by the Company generally contract with the Company
for equipment service and software support, which includes normal maintenance
and repair or replacement of product components. Revenue from these service and
support contracts is recognized ratably over the term of the contract and the
cost associated with these activities is expensed as incurred.

Warranty

Product warranty is provided by the original equipment manufacturer. The
Company only warrants the services provided. Costs associated with post-
installation warranty obligations are estimated and accrued at the time of
revenue recognition, if significant.

Customer Advances

Customer advances include advance payments on contracts in progress at year
end. These amounts will be recognized as income after acceptance by the
customers.

Cash and Cash Equivalents

Cash and cash equivalents include cash deposited in demand deposits at banks
and highly liquid investments with original maturities of three months or less.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined
using the weighted average cost method. Inventories consist of finished products
held for resale.

Property, Plant and Equipment

Property, plant and equipment are carried at cost and are generally
depreciated using the straight-line method over the estimated useful lives of
the assets. The useful lives utilized for this purpose are:

Machinery and equipment..................... 3-5 years
Leasehold improvements...................... 10 years or shorter lease term

F-8
<PAGE>

COPE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Goodwill

Goodwill represents the cost in excess of net assets acquired on business
acquisitions and is amortized on a straight-line basis over five to seven years.
The Company periodically evaluates the realizability of the carrying value of
goodwill by assessing current conditions and estimates of future cash flows.

Impairment of Long-lived Assets

The Company reviews long-lived assets and certain identifiable intangibles to
be held and used or disposed of for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. Where the undiscounted cash flows is less than the carrying amount
of the asset, the asset is written down to its net realizable value measured on
the basis of discounted expected cash flows.

Intangible Assets

Intangible assets are carried at cost and are generally depreciated using the
straight-line method over the estimated useful lives of the assets. The useful
lives utilized for this purpose are:

Licenses................................................ 3-5 years
Trademarks.............................................. 5 years

In the first quarter of fiscal 1998, the Company reported an impairment loss
of $63,004 related to the write-down of an exclusive option for the rights to
purchase, develop and market a new technique for the automatic storage of data.
The option was acquired in 1997. In the first quarter of 1998, the Company
conducted an in-house pilot demonstration of the technique, which indicated that
the technique had less value than previously believed. As a result, management
reduced the carrying value of the asset to the estimated fair market value based
on the estimated amount recoverable upon sale to a third party.

Foreign Currencies

The financial statements of each of the Company's subsidiaries are measured in
the currency in which that entity primarily conducts its business (the
functional currency). The functional currency of all the Company's non-United
States subsidiaries is the applicable local currency.

F-9
<PAGE>

COPE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Assets and liabilities denominated in foreign functional currencies are
translated into United States dollars ("USD" or "$") at the exchange rate as
of the balance sheet date. Income statement accounts denominated in foreign
functional currencies are translated using the average exchange rate for the
period. Translation adjustments resulting from this process are recorded as a
component of other comprehensive income and are accumulated in a separate
component of shareholders' equity.

Foreign currency transaction gains and losses resulting from the settlement of
amounts receivable or payable denominated in a currency other than the
functional currency are credited or charged to income.

A certain amount of the Company's purchases are settled in USD and the Company
enters into forward exchange contracts for the purchase of USD. Since there are
no firm purchase commitments, such exchange contracts do not qualify as a hedge
under FAS 52 and, accordingly, the gains or losses are included in the income
statement in the period in which the exchange rates change occurred.

Income Taxes

The Company accounts for certain income and expense items differently for
financial reporting purposes than for tax purposes. Provisions for deferred
taxes are made in recognition of such temporary differences, following the
requirements of Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes".

Advertising Costs

Advertising costs are recognized as incurred. Advertising costs were
$1,645,000 in 1999, $636,000 in 1998 and $435,000 in 1997.

Accounting Change

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting the Costs of Start-Up Activities", which
requires that costs related to start-up activities be expensed as incurred.
Prior to 1999, the Company capitalized its start-up costs and amortized them
over four years. The Company adopted the provisions of the SOP as of January 1,
1999. There was no material impact on net income of financial position as a
result of the adoption of SOP 98-5.

Derivatives and Hedging Activities

In June 1999, the Financial Accounting Standards Board issued Statement No.
137, Accounting for Derivative Instruments and Hedging Activities-Deferral of
the Effective Date of FAS 133. FAS 133 is now required to be adopted for all
fiscal quarters of all fiscal years beginning after June 15, 2000. Because of
the Company's minimal use of derivatives, management does not anticipate that
the adoption of the new Statement will have a significant effect on earnings or
the financial position of the Company.

Other Comprehensive Income

In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income"
which requires presentation of comprehensive income and its components in the
financial statements. Comprehensive income consists of net income and foreign
currency translation adjustments and is presented in the Consolidated Statements
of Shareholders' Equity. The adoption of SFAS No. 130 had no impact on net
income or total shareholders' equity. Prior year financial statements have been
reclassified to conform to the SFAS No. 130 requirements.

F-10
<PAGE>

COPE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Earnings per Share

In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share". SFAS No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Basic earnings per share is calculated by dividing net income by the weighted
average shares outstanding. The computation of diluted earnings per share is
similar to basic earnings per share except that it assumes that the weighted
average shares outstanding is increased by shares issuable upon exercise of
those stock options for which market price exceeds exercise price. Weighted
average shares have been retroactively restated for the equivalent number of
shares received by COPE Holding AG as a result of the COPE Reorganization (See
Note 2).

Reclassifications

Certain prior year amounts have been reclassified in order to conform to the
current year presentation.

F-11
<PAGE>

COPE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 4--Business Acquisition

On June 25, 1998, COPE GmbH acquired all of the capital shares of Forum GmbH
("Forum"), a German data storage company, for $962,977. The acquisition of
Forum has been accounted for by the purchase method of accounting. Accordingly,
the operating results of Forum have been included in the consolidated operating
results from the date of acquisition. The excess of the purchase price over the
fair value of net assets acquired was $837,569 and has been recorded as
goodwill, which is being amortized on a straight line basis over seven years.
The acquisition was financed through available cash on hand and short term
borrowings.

The purchase price was allocated to the assets acquired and liabilities
assumed based on their fair values at the date of the Forum acquisition as
follows:

<TABLE>
<S> <C>
Cash........................................................... $ 939,002
Accounts receivable............................................ 2,549,374
Inventories.................................................... 1,059,078
Accounts payable............................................... (3,424,274)
Short-term borrowings.......................................... (956,543)
Other, net..................................................... (41,229)
-----------
Net fair value of assets acquired and liabilities assumed...... 125,408
Goodwill....................................................... 837,569
-----------
Purchase price................................................. $ 962,977
===========

Cash paid for Forum............................................ $ 338,653
Short-term borrowing assumed................................... 624,324
-----------
$ 962,977
===========

Cash acquired in acquisition of Forum.......................... $ 939,002
Cash paid for Forum............................................ (338,653)
Cash paid for other business................................... (163,347)
-----------
Net cash flow impact of acquisitions of businesses............. $ 437,002
===========
</TABLE>

F-12
<PAGE>

COPE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

On April 19, 1999, the Company acquired Hicomp Software Systems GmbH
("Hicomp"), a German software company, in a stock transaction accounted for by
the purchase method of accounting. The Company issued 420,000 new shares in
exchange for all outstanding Hicomp shares. Accordingly, the operating results
of Hicomp have been included in the consolidated operating results from the date
of acquisition. The excess of the purchase price over the fair value of net
assets acquired was $15,626,069 and has been recorded as goodwill, which is
being amortized on a straight line basis over five years. Hicomp, headquartered
in Hamburg, Germany, develops back-up and retrieval software products. Its
leading products, Hiback and Hibars, are multi-platform back-up solutions
recognized for performance and flexibility.

Additionally, the former shareholder of Hicomp granted the Company a purchase
option, expiring June 30, 2000, to acquire all of the capital shares of two U.S.
corporations owned by the shareholder, which are engaged in the business of
distributing Hiback and Hibars software in the U.S., at the then market price
based on negotiations between the two parties. No consideration was paid for the
option. The option represents a right of first refusal only and gives the
company no price advantage since this is stipulated to be based on the market
price at the date of acquisition. Accordingly, no value has been allocated to
the option as part of the allocation of the purchase price of Hicomp.

In October 1999, the Company repurchased from the former shareholders of
Hicomp 200,000 of the common shares issued by the Company in the acquisition at
a price of DEM 7,200,000 ($3,958,000).

The Hicomp assets acquired and liabilities assumed have been recorded at their
fair values at the date of the Hicomp acquisition. A summary of the assets
acquired, liabilities assumed and consideration paid follows:

Accounts receivable................................... $ 102,005
Other current assets........................... ...... 22,544
Property, plant and equipment......................... 146,399
Other assets.......................................... 215,614
Short-term borrowings................................. (132,652)
Accounts payable...................................... (240,262)
Other current liabilities............................. (444,353)
Noncurrent liabilities................................ (264,159)
---------
Net fair value of assets acquired
and liabilities assumed............................... (594,864)

Goodwill.............................................. 15,626,069
----------
Purchase price........................................ $ 15,031,205
============

Value of the securities issued........................ $ 14,582,400
Acquisition costs..................................... 448,805
------------
Purchase price........................................ $ 15,031,205
============

Annual amortization (based on amortization period
of five years) $ 3,125,214

The Company paid in the last quarter 1999 $171,330 of the acquisition
cost. In the first quarter 2000 the Company paid $277,475 acquisition
costs.

F-13
<PAGE>

COPE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The pro forma unaudited results of operations for the twelve months ended
December 31, 1999 and December 31, 1998, assuming consummation of the purchases
as of the beginning of the periods presented, are as follows:

<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Revenues......................................... $32,812,411 $38,578,226
Net income....................................... (3,906,366) (1,875,736
Basic earnings per share......................... (1.10) (0.56)
Diluted earnings per share....................... (1.10) (0.56)
</TABLE>

These unaudited pro forma results have been prepared for comparative purposes
only and include certain adjustments such as additional amortization expense as
a result of goodwill. They do not purport to be indicative of the results of
operations which actually would have resulted had the acquisition occurred on
January 1, 1998, or which may result in the future.

Note 5--Other Current Assets

Other current assets consist of the following:

<TABLE>
<CAPTION>
December 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Prepaid expenses 145,144 358,170 108,398
Withholding taxes 211,102 0 0
Deposits 145,652 31,258 15,785
Value added taxes 19,937 37,977 43,485
Other 146,921 22,608 11,693
---------- -------- --------
Total other current assets $ 668,756 $450,013 $179,361
========== ======== ========
</TABLE>

Note 6--Property, Plant and Equipment

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1999 1998 1997
--------------- ----------------- ---------------
<S> <C> <C> <C>
Leasehold improvements.............................. $ 214,684 $ 210,529 $ 35,347
Machinery and equipment............................. 2,335,714 1,402,887 1,138,946
Accumulated depreciation............................ (1,266,911) (862,181) (603,818)
----------- ---------- ----------
Total property, plant and equipment, net......... $ 1,283,487 $ 751,235 $ 570,475
=========== ========== ==========
</TABLE>

Note 7 -- Deferred capital transaction costs

As of December 31, 1999 the Company had deferred capital transaction costs of
$1,264,237 relating to the Company's secondary public offering on the Frankfurt
Stock Exchange "Neuer Markt" which have been applied in the first quarter 2000
against the additional paid in capital from the issue of new common stock. The
offering has taken place on February 11, 2000.

As of December 31, 1997 the Company had deferred capital transaction costs of
$138,821 relating to the COPE Reorganization.

F-14
<PAGE>

COPE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 8--Short-term Borrowings

As of December 31, 1999, the Company had established short-term overdraft
facilities under which the Company and its subsidiaries could borrow up to
$5,705,885. Amounts drawn down under these facilities are due on demand and
collateralized by the Company's investment in COPE AG and COPE GmbH.

Amounts outstanding at December 31, 1999, 1998 and 1997 total $4,482,832,
$2,385,303, and $661,982, respectively. As of December 31, 1999, the Company had
approximately $1,223,053 available under these facilities. The weighted average
interest rate on amounts outstanding was 3.8%, 5.0% and 7.0% at December 31,
1999, 1998 and 1997, respectively. Interest expenses for the years ending
December 31, 1999, 1998 and 1997, amounted to $209,480, $127,028 and $76,197,
respectively.

Note 9--Pension Plans

Substantially all of the Company's employees are covered by government pension
plans administered by the respective countries' governmental authorities. The
employees' contributions are based on a percentage of gross salary. The Company
generally contributes an amount equal to that contributed by the employees. The
cost of these plans, charged to operations, for the years ended December 31,
1999, 1998 and 1997 was $829,765, $446,528 and $226,904, respectively. The
Company provides no additional pension or post-retirement benefits.

Note 10--Other Current Liabilities

Other current liabilities consist of the following:

<TABLE>
<CAPTION>
December 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Value Added Taxes $ 534,389 $363,297 $ 87,691
Legal, professional and other fees 53,004 61,140 67,190
Accrued liabilities 924,520 0 0
Personnel and social security expenses 589,052 314,138 176,170
Other 238,635 63,809 58,588
---------- -------- --------
$2,339,600 $802,384 $389,639
========== ======== ========
</TABLE>

F-15
<PAGE>

COPE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 11--Income Taxes

Pretax income for the years ended December 31, 1999, 1998 and 1997 was taxed
in the following jurisdictions:

<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------------
1999 1998 1997
----------------- ---------------- -----------------
<S> <C> <C> <C>
Switzerland................................ $ (543,984) $1,242,682 $ 994,782
Other...................................... (2,926,034) (216,481) (490,575)
----------- ---------- ---------
$(3,470,018) $1,026,201 $ 504,207
=========== ========== =========
</TABLE>

Components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------------
1999 1998 1997
------------------ ----------------- ----------------
<S> <C> <C> <C>
Current:
Switzerland........................... $ 26,307 $ 154,113 $ 34,688
Other................................. 8,404 4,028 (612)
------- -------- ---------
Total current............................ 34,711 158,141 34,076
------- -------- ---------
Deferred:
Switzerland........................... (139,431) (6,973) 39,074
Other................................. (255,668) (136,538) (201,840)
-------- -------- ----------
Total deferred........................... (395,099) (143,511) (162,766)
-------- -------- ----------
$ (360,388) $ 14,630 $(128,690)
======== ========= =========
</TABLE>

The Company has net deferred tax assets (liabilities) as of December 31, 1999,
1998 and 1997 as follows:

<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1999 1998 1997
---------------- ----------------- -----------------
<S> <C> <C> <C>
Non-current deferred tax assets:
Net operating losses.................................... $823,972 $ 592,495 $ 309,652
-------- --------- ---------
Deferred tax liabilities:
Inventories............................................. 0 (100,265) (94,629)
Trade accounts receivable............................... (20,353) (23,529) (22,207)
Deductible provisions eliminated on consolidation....... (59,711) (69,029) (65,150)
Warranty accrual........................................ 0 (23,529) (18,814)
Other................................................... (16,276) 0 (10,246)
--------- --------- ---------
(96,340) (216,352) (211,046)
--------- --------- ---------
Net deferred tax assets..................................... $727,632 $ 376,143 $ 98,606
========= ========= =========
</TABLE>

F-16
<PAGE>

COPE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Management believes it is more likely than not that all deferred tax assets
are realizable.

A reconciliation of income taxes determined using the applicable rate to
actual income taxes provided, is as follows:

<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------
1999 1998 1997
-------------- -------------- ------------
<S> <C> <C> <C>
Income tax expense at the applicable rate of -11.34% (5.59% in
1998; -5.23% in 1997)............................................ $393,405 $(57,391) $ 26,374
Tax rate change on opening deferred taxes.......................... 0 18,021 65,400
Release of overprovision in prior year............................. 30,896 0 13,833
Permanent differences.............................................. (63,913) 25,358 25,091
Other.............................................................. 0 (618) (2,008)
-------- -------- --------
$360,388 $(14,630) $128,690
======== ======== ========
</TABLE>

The applicable tax rate is obtained by aggregating the separate
reconciliations prepared using the domestic rate in each individual jurisdiction
in which the Company operates. The negative applicable rate obtained in 1999 and
1997 results from losses incurred in jurisdictions with high domestic tax rates.
In 1998, fewer net losses were incurred in such jurisdictions.

At December 31, 1999, the Company had Switzerland, German, and Austrian net
loss carryforwards for tax purposes of approximately $136,947, $1,308,736 and
$220,071 respectively. Under applicable German and Austrian tax laws, the net
operating losses can be carried forward for an indefinite period of time and for
Switzerland for 7 years.

F-17
<PAGE>

COPE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 12--Stock Options and Stock Purchase Warrants

During 1998, the Company adopted the 1998 Stock Option Plan ("1998 Plan")
provides for the granting of either incentive stock options or non-qualified
stock options to employees, officers, directors, consultants and independent
contractors of the Company. Under the 1998 Plan, the Company is authorized to
grant a maximum of 400,000 stock options for terms of up to ten years (five
years in the case of incentive stock options granted to greater than 10%
stockholders). Options are subject to forfeiture upon termination of employment
or other relationship with the Company and the 1998 Plan terminates in August
2008.

During 1998, options to purchase 167,500 shares of the Company's common stock
were issued to employees and non-employee directors of the Company, 26,890 have
been exercised and 1,370 cancelled or expired during 1999. 139,240 remain
outstanding as of December 31, 1999.

During 1999, options to purchase 212,700 shares of the Company's common stock
were issued to employees and non-employee directors of the Company, 8,050 have
been cancelled or expired. 204,650 remain outstanding as of December 31, 1999.

Summary information about the Company's stock options outstanding as of
December 31,:

<TABLE>
<CAPTION>
1999 1998 1997
------------------------- ------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the
beginning of the year.... 167,500 $11,66 -- -- -- --
Granted .................. 212,700 $24,38 167,500 $11,66 -- --
Exercised ................ (26,890) $ 9,19 -- -- -- --
Canceled/Expired.......... (9,420) $ 8,40 -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Outstanding at the
end of year.............. 343,890 $19,30 167,500 $11,66 -- --
Exercisable at the end
of the year.............. -- -- -- -- -- --
Weighted average fair
value of options granted
during the year.......... $ 2,83 $ 5,44 --
------------------------------------------------------------------------------------
</TABLE>

The Company applies Accounting Principles Board Opinion No. 25 in accounting
for its stock options. All options outstanding were granted at prices which were
above market price as of the date of grant and, accordingly, no compensation
expense has been recognized. Had compensation expense for the Company's stock-
based compensation plans been determined consistent with SFAS 123 ''Accounting
for Stock-Based Compensation'', the impact on the Company's net earnings and
earnings per share would have been as follows:

Years ended December 31,
--------------------------
1999 1998
------------ ----------
<S> <C> <C>
Net income as reported.................. $(3,109,630) $1,011,571
Pro forma net income.................... (3,579,198) 948,934
Basic earnings per share:
As reported.......................... $ (0.91) $ 0.34
Pro forma............................ $ (1.05) 0.32
Diluted earnings per share:
As reported.......................... $ (0.91) $ 0.34
Pro forma............................ $ (1.05) 0.32
</TABLE>

F-18
<PAGE>

COPE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The pro forma results reflect amortization of the fair value of stock options
over the vesting period. The weighted average fair value of options granted in
1999 and 1998 was $2.83 and $5.44 respectively. The fair value of each option
grant was estimated on the date of grant using a Black-Scholes option pricing
model, assuming a dividend yield of 0% for all years, a weighted average risk
free interest rate in 1999 and 1998 of 5.16% and 4.70% respectively, a weighted
average expected lifetime of 2.55, respectively 3.74 years in 1999 and 1998 and
a volatility figure of 26% in 1999, respectively 60% to 75% in 1998.

Additionally, as of December 31, 1999, there were 24,621 stock purchase
warrants outstanding which were exercisable at $7.54 per share. The warrants
expire from April 1 to October 14, 2000.

Note 13--Related Party Transactions

As of December 31, 1999, 1998 and 1997, the financial statements included the
following balances due from (to) related parties:

<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
A. Knapp.............................. $ (767,521) $ 0 $(118,874)
S. Isenschmid......................... (314,090) 0 20,890
----------- ------ ---------
Net amount due to related parties..... $(1,081,611) $ 0 $ (97,984)
=========== ====== =========
</TABLE>

In October 1999, the Company borrowed CHF 1,200,000 ($767,521) from its
Chairman of the Board, Adrian Knapp. In December 1999, the Company borrowed CHF
500,000 ($314,090) from its President and Chief Executive Officer, Stephan
Isenschmid. The advances bore interest at the rate of 8.5% per annum. The
Company repaid the advances, with interest, in March 2000.

Loans receivable from related party represents a 6.0% demand loan. The loan is
due from acp GmbH, Germany, of which Mr. Peter Koch, a member of the Company's
Board of Directors, is the General Manager.

F-19
<PAGE>

COPE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 14--Leases

The Company has operating leases primarily for office space and equipment
which expire at various dates through the year 2003 with, in some instances,
renewal privileges. Certain leases provide for escalation of the rentals based
on the increase in the consumer price index and base mortgage rates. Operating
lease costs are charged to income as incurred.

The minimum annual rental commitments under long-term non-cancelable operating
leases as of December 31, 1999, were as follows:

1999
-----------
2000................................... $ 623,396
2001................................... 563,747
2002................................... 477,690
2003................................... 381,214
2004................................... 366,761
-----------
Total future minimum lease payments.... $ 2,412,808
===========

Total rent expense for operating leases was approximately $703,821, $168,970
and $120,484 for the years ended December 31, 1999, 1998 and 1997, respectively.

Note 15--Commitments and Contingent Liabilities

Management is not aware of any matters that could give rise to any liability
to the Company that would have a material adverse effect on the Company's
business, financial condition or results of operations.

Note 16--Segment and Geographic Data

In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which superceded SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS No. 131 established
standards for the way that public business enterprises report information about
operating segments in annual financial statements. SFAS No. 131 also established
standards for related disclosures about products and services, geographic areas,
and major customers. The adoption of SFAS 131 did not effect results of
operations or financial position, but did effect the disclosure of segment
information.

Management, via country managing directors, controls operations on a
geographic basis with subsidiaries located in Switzerland, Germany and Austria
and uses earnings before interest, taxes, depreciation and amortization (EBITDA)
as its measure of segment profit or loss. Management decided to change the
measurement from EBIT (Earnings before interest and taxes) to EBITDA after the
Hicomp acquisition because of the high goodwill amortization the Company will
have in the next five years. Earnings before interest, taxes, depreciation and
amortization is defined as net income plus the following:

. extraordinary items and cumulative effect of accounting change;
. provision for income taxes;
. interest expense; and
. depreciation and amortization

F-20
<PAGE>

COPE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Earnings before interest, taxes, depreciation and amortization is presented not
as an alternative measure of operating results or cash flow from operations as
determined in accordance with generally accepted accounting principles, but
because it is a widely accepted financial indicator of a company's ability to
incur and service debt.

Each geographic area's operations comprise the following products and
services: (1) Solutions which consist of the design, implementation and
management of storage and security solutions including the sale of related
software and hardware; and (2) Services which consist of consulting, training
and integration services including operations and maintenance support. The
enterprise-wide disclosures regarding products and services are contained in the
income statement.

Information concerning the Company's reportable segments is summarized as
follows by location of operations (Switzerland: COPE Holding AG, COPE AG;
Germany: COPE GmbH and Hicomp Software Systems GmbH, Austria: COPE
Handelsges.mbH; Other: COPE, Inc.; intercompany sales are generally at purchase
cost):

<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------
1999 1998 1997
---------------- ---------------- ----------------
Total revenue:
<S> <C> <C> <C>
Switzerland............................. $12,691,960 $15,391,521 $12,133,274
Germany................................. 16,957,674 11,997,975 4,759,643
Austria................................. 2,901,234 1,768,674 1,182,198
Other................................... 0 0 692,076
----------- ----------- -----------
32,550,868 29,158,170 18,767,191
----------- ----------- -----------
Sales between geographic areas:
Switzerland............................ (47,058) (37,743) (182,757)
Germany................................ (128,756) (31,974) (76,220)
Austria................................ (13,550) (29,303) (49,789)
Other.................................. 0 0 (542,254)
----------- ----------- -----------
(189,364) (99,020) (851,020)
----------- ----------- -----------
Total revenue from external customers:
Switzerland............................ 12,644,902 15,353,778 11,950,517
Germany................................ 16,828,918 11,966,001 4,683,423
Austria................................ 2,887,684 1,739,371 1,132,409
Other.................................. 0 0 149,822
----------- ----------- -----------
$32,361,504 $29,059,150 $17,916,171
=========== =========== ===========
Depreciation and amortization:
Switzerland............................ $ 287,626 $ 226,681 $ 182,937
Germany................................ 229,412 91,124 31,579
Austria................................ 63,501 19,131 5,847
Other.................................. 2,154,193 0 0
----------- ----------- -----------
$ 2,734,732 $ 336,936 $ 220,363
=========== =========== ===========
Earnings before interest and taxes, depreciation
and amortization (EBITDA):
Switzerland............................ $ (996,852) $ 1,517,473 $ 1,219,801
Germany................................ 613,902 (93,156) (314,785)
Austria................................ 147,649 66,578 (111,950)
Other.................................. (362,717) (27,428) 6,997
=========== =========== ===========
$ (598,018) $ 1,463,467 $ 800,063
=========== =========== ===========
</TABLE>

F-21
<PAGE>

COPE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Reconciliation of EBITDA to earnings before taxes:

<TABLE>
<CAPTION>
Earnings before interest, taxes, depreciation and amortization (EBIDTA):

<S> <C> <C> <C>
Switzerland............................ $ (996,852) $ 1,517,473 $1,219,801
Germany................................ 613,902 (93,156) (314,785)
Austria................................ 147,649 66,578 (111,950)
Other.................................. (362,717) (27,428) 6,997
----------- ----------- ----------
$ (598,018) $ 1,463,467 $ 800,063
=========== =========== ==========

Depreciation and amortization:
Switzerland............................ $ (287,626) $ (226,681) $ (182,937)
Germany................................ (229,412) (91,124) (31,579)
Austria................................ (63,501) (19,131) (5,847)
Other.................................. (2,154,193) 0 0
----------- ----------- ----------
$(2,734,732) $ (336,936) $ (220,363)
=========== =========== ==========

Interest, net:
Switzerland........................... $ (90,032) $ (48,111) $ (59,843)
Germany............................... 8,554 (46,512) (9,935)
Austria............................... (5,659) (5,707) (5,447)
Other................................. (50,131) 0 (268)
----------- ----------- ----------
$ (137,268) $ (100,330) $ (75,493)
=========== =========== ==========
Earnings before taxes:
Switzerland.......................... $(1,374,510) $ 1,242,681 $ 977,021
Germany.............................. 393,044 (230,792) (356,299)
Austria.............................. 78,489 41,740 (123,244)
Other................................ (2,567,041) (27,428) 6,729
----------- ----------- ----------
$(3,470,018) $ 1,026,201 $ 504,207
=========== =========== ==========
<CAPTION>
Years ended December 31,
------------------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Total Assets:
Switzerland.......................... $ 4,986,345 $ 5,681,247 $5,493,536
Germany.............................. 5,246,029 5,722,295 1,544,735
Austria.............................. 1,227,224 1,125,184 364,687
Other................................ 14,833,824 109,921 0
----------- ----------- ----------
$26,293,422 $12,638,647 $7,402,958
=========== =========== ==========
</TABLE>

F-22
<PAGE>

COPE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 17--Financial Instruments

Fair Value

The carrying value of financial instruments such as cash and cash equivalents,
short-term borrowings, accounts receivable, accounts payable approximate their
fair value due to the short-term maturities of these instruments.

Concentration of Credit Risks

Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash and accounts receivable. The Company's
cash is principally denominated in Swiss Francs and is maintained principally
with one financial institution in Switzerland. The Company provides credit in
its normal course of business to a wide variety of customers and, generally,
requires no collateral from its customers. The allowance for non-collection of
accounts receivable ($0 in 1999, 1998 and 1997) is based upon management's
expectations of collectibility. In the years ended December 31, 1999, 1998 and
1997, sales to the five biggest customers of the Company amounted to 16%, 36%
and 29% of consolidated net sales, respectively. Sales to one customer accounted
for 8%, 14% and 11% of consolidated sales in the years ended December 31, 1999,
1998 and 1997, respectively. The Company performs ongoing credit evaluations of
its customers.

The Company enters into forward exchange contracts for significant U.S. Dollar
purchase transactions. At December 31, 1999 and 1998, no such contracts were
open. At December 31, 1997, seven forward exchange contracts were open with
settlement dates from January to June 1998.

Note 18--Subsequent Event

In February 2000, the Company conducted a public offering of 800,000 shares of
common stock on the Frankfurt Stock Exchange, Germany, priced at Euro 21.00
($20.54) per share.

In March 2000, the Company issued 67,930 shares of common stock upon exercise
of outstanding common stock purchase options at exercise prices ranging from
$8.40 to $35.00 per share.

In March 2000, the Company and Mount10.com Holding AG have entered into a
letter of intent to merge their business activities. The proposed merger would
encompass a consolidation of the Company and Mount10.com into a new Swiss
holding company.

F-23
<PAGE>

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

Prior to the COPE Reorganization in August 1998, COPE's independent auditors for
the fiscal years ended June 30, 1998 and 1997 were Raimondo Pettit Group
(formerly Raimondo Pettit & Glassman) 21515 Hawthorne Boulevard, Suite 1250,
Torrance, California 90503. On March 18, 1999, the Board of Directors of COPE
approved the appointment of ATAG Ernst & Young Ltd., who had been the
independent auditors for COPE Holding AG for the fiscal years ended December 31,
1997, 1996 and 1995.

Raimondo Pettit Group's report on COPE, financial statements for the 1998 and
1997 fiscal years did not contain any adverse opinion or disclaimer of opinion,
nor was it qualified as to uncertainty, audit scope or accounting principles,
except that the firm's report for the fiscal year ended June 30, 1997 financial
statements included an explanatory paragraph relating to substantial doubt
existing about COPE's ability to continue as a going concern. COPE has had no
disagreements with Raimondo Pettit Group during the past two years and the
subsequent interim period preceding this dismissal on any matter of accounting
principles or practices, financial statement disclosure, or audit scope or
procedure, which disagreement(s), if not resolved to the satisfaction of
Raimondo Pettit Group, would have caused it to make a reference to the subject
matter of the disagreement(s) in connection with its reports.

Part III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.

The executive officers and directors of COPE, the positions held by them and
their ages as of March 27, 2000 are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Adrian Knapp 37 Chairman of the Board and Executive Vice President

Stephan Isenschmid 38 President, Chief Executive Officer and Director

Markus Bernhard 36 Chief Financial Officer

Peter Koch 74 Director

Markus Stalder 47 Director

Kevin DeVito 39 Secretary and Director
</TABLE>
Mr. Knapp has served as Chairman of the Board and Executive Vice President of
COPE since September 25, 1998. Mr. Knapp co-founded COPE Holding AG in 1991 and
has served as Chairman of the Board of that company since its inception.

Mr. Isenschmid has served as President, Chief Executive Officer and a director
of COPE since September 25, 1998. Mr. Isenschmid co-founded COPE Holding AG in
1991 and has served as President, Chief Executive Officer and a director of that
company since its inception.

Mr. Bernhard has served as Chief Financial Officer of COPE since September 25,
1998. Mr. Bernhard has also served as Chief Financial Officer of COPE Holding AG
since September 1997. From 1991 to
<PAGE>

September 1997, Mr. Bernhard was employed as a Swiss certified accountant at
Revisuisse Price Waterhouse.

Mr. Koch has served as a director of COPE since September 25, 1998. Mr. Koch has
served as General Manager of acp GmbH, a German-based distributor of computer
products and peripherals since 1991.

Mr. Stalder has served as a director of COPE since September 25, 1998. Mr.
Stalder has been a partner in the law firm, Stalder & Murer, located in
Sihlbrugg, Switzerland, since 1991. Stalder & Murer has acted as general counsel
to COPE Holding AG since 1991.

Mr. DeVito has served as a director of COPE since June 1992. From 1992 to
September 25, 1998, Mr. DeVito served as President of COPE, Inc., which during
that period was known as Harrier, Inc. Since 1996, Mr. DeVito has served as a
principal of New Capital AG, a Zurich based financial and management consulting
firm.

Members of the board of directors are typically elected by the shareholders of
COPE. However, vacancies in the board may be filled by a majority of the
remaining directors. Each director holds office until his successor is elected
by the stockholders and his successor is qualified or until the director
resigns. The board of directors has established an Audit Committee consisting of
Markus Stalder, Adrian Knapp and Kevin DeVito, with Mr. Stalder to serve as
Chairman. The Audit Committee reviews COPE's independent auditors, the scope and
timing of their audit services and other services they are asked to perform, the
auditor's report on COPE's financial statements following completion of their
audit, and COPE's policies and procedures regarding internal accounting and
financial controls. In addition, the Audit Committee makes annual
recommendations to the board of directors for the appointment of independent
auditors for the ensuing year. The board of directors has also established a
Compensation Committee consisting of Kevin DeVito, Markus Stalder and Adrian
Knapp, with Mr. DeVito to serve as Chairman. The Compensation Committee reviews
and recommends to the board of directors the compensation and benefits of all
officers of COPE and reviews general policy matters relating to compensation
benefits of employees of COPE.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
officers and directors of COPE and those persons who beneficially own more than
10% of the outstanding shares of common stock of COPE to file reports of
securities ownership and changes in such ownership with the securities and
Exchange Commission. Officers, directors and greater than 10% beneficial owners
are also required by rules promulgated by the Commission to furnish COPE with
copies of all Section 16(a) forms they file.

Based solely upon a review of the copies of such forms furnished to COPE, or
written representations that no Form 5 filings were required, COPE believes that
during 1999 all Section 16(a) filing requirements applicable to the officers,
directors and greater than 10% beneficial owners of COPE were complied with.
<PAGE>

Item 10. Executive Compensation And Other Information.

Cash Compensation of Executive Officers

The following table sets forth the cash compensation paid to the
executive officers of COPE for services rendered during the fiscal years ended
December 31, 1999, 1998 and 1997.

<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------------------------------------------- --------------------------------------------

Common Shares
Other Restricted Underlying All Other
Name and Annual Stock Awards Options Granted Compensation
Position Year Salary Bonus Compensation ($) (# Shares) (1)
- ----------------------- --------- -------------- -------- -------------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>

Stephan Isenschmid, 1999 129,654 -0- -0- -0- 7,000 12,000
CEO 1998 135,983 -0- -0- -0- 56,000 12,000
1997 106,922(2) -0- -0- -0- -0- -0-

Adrian Knapp, Vice 1999 103,723 -0- -0- 7,000 12,000
President 1998 108,787 -0- -0- -0- 56,000 12,000
1997 106,922(2) -0- -0- -0- -0- -0-

Markus Bernhard, 1999 90,226 -0- -0- -0- 7,000 12,000
Chief Financial 1998 85,321 -0- -0- -0- 18,500 -0-
Officer 1997 19,405 -0- -0- -0- -0- -0-
___________________
</TABLE>
(1) Represents a car allowance of $1,000 per month.
(2) One-half of 1997 compensation represents fees paid to consulting firms
controlled by Messrs. Isenschmid and Knapp for the services rendered by
them to COPE.
(3) Mr. Bernhard has served as Chief Financial Officer of COPE since September
1997.
<PAGE>

Option/SAR Grants in Last Fiscal Year

<TABLE>
<CAPTION>
Individual Grants
- -----------------------------------------------------------------------------------------------------------------------------------
Number of Securities
Name Underlying Options/SARs % of Total Options/SARs Exercise or Expiration Date
Granted Granted to Employees in Base Price
(#) Fiscal Year ($/Sh)
- --------------------- --------------------------- --------------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Stephan Isenschmid, 3,500 (2) 1.6% 22.00 9/30/01
President and CEO, 3,500 (2) 1.6% 22.00 9/30/03
Adrian Knapp,
Chairman and
Executive Vice
President, and
Markus Bernhard,
CFO
</TABLE>
______________
(1) Mr. Isenschmid, Mr. Knapp and Mr. Bernhard each received options in the
amounts and on the terms and conditions as set forth in table presented.

(2) Options vest and first become exercisable on May 1, 2001.

<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and Year-End Option Values

Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money
Acquired Options/SARs at FY- Options/SARs at FY-
Name on Exercise Value End (#) End ($)
(#) Realized
($) Exercisable/ Exercisable/
Unexercisable Unexercisable
- ----------------------------- --------------- --------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Stephan Isenschmid, 5,000 $ 85,800 0/58,000 $0/479,060
President and CEO

Adrian Knapp, Chairman and 5,000 $ 85,800 0/58,000 $0/479,060
Vice President

Markus Bernhard, CFO 6,500 $135,350 0/19,000 $0/156,230
</TABLE>

Compensation of Directors

All directors receive reimbursement for out-of-pocket expenses in attending
Board of Directors meetings. From time to time COPE may engage certain members
of the board of directors to perform services on its behalf. In these cases,
COPE compensates the members for their services at rates no more favorable than
could be obtained from unaffiliated parties. None of the non-officer directors,
Markus Stalder, Peter Koch, or Kevin DeVito, receive compensation for serving as
directors.

Indemnification of Directors
<PAGE>

As permitted by Section 145 of the Delaware General Corporation Law, COPE's
certificate of incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach or alleged breach of
their fiduciary duty as directors. In addition, as permitted by Section 145 of
the Delaware General Corporation Law, COPE's bylaws provide that it may, in its
discretion, indemnify its directors, officers, employees and agents and persons
serving in these capacities in other business enterprises at its request, to the
fullest extent permitted by Delaware law. COPE's bylaws also allow it to advance
expenses, as incurred, to its directors and officers in connection with
defending a proceeding.

COPE's policy is to enter into indemnification agreements with each of its
directors and officers that provide the maximum indemnity allowed to directors
and officers by Section 145 of the Delaware General Corporation Law and the
bylaws as well as additional procedural protections.

The indemnification provisions in the bylaws and the indemnification agreements
COPE enters into with its directors and officers may be sufficiently broad to
permit indemnification of its directors and officers for liabilities arising
under the U.S. federal securities laws. However, COPE is aware that in the
opinion of the Securities and Exchange Commission this indemnification is
against public policy as expressed under the U.S. federal securities laws and is
therefore unenforceable.
<PAGE>

Item 11. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information regarding the beneficial
ownership of the shares of common stock as of March 27, 2000 by (1) each person
known by COPE to be the beneficial owner of more than five percent (5%) of the
common stock, (2) each of COPE's directors and executive officers and (3) all
directors and executive officers as a group.

<TABLE>
<CAPTION>
Name and Address Number Percent
- --------------------------------------------------- --------------------------------- ------------------------------
<S> <C> <C>
Adrian Knapp(1)(2) 1,310,000(2) 31.0%
Stephan Isenschmid(1)(2) 1,260,000(2) 29.9%
Markus Bernhard(1)(3) 5,850(3) (4)
Markus Stalder (1)(5) -- --
Peter Koch (1)(5) 16,000 (4)
Kevin DeVito(6)(7) 870 (4)
Uwe Hinrich(8)(9) 190,000 4.4%
All officers and directors as a group 2,592,720 61.4%
</TABLE>
____________________
(1) Address is Grundstrasse 12, 6343 Rotkreuz, Switzerland.

(2) Includes 9,000 shares of common stock underlying presently exercisable
options. Does not include 49,000 shares of common stock underlying options
that are subject to vesting.

(3) Includes 3,100 shares of common stock underlying presently exercisable
options. Does not include 15,900 shares of common stock underlying options
that are subject to vesting.

(4) Less than one percent.

(5) Does not include 1,400 shares of common stock underlying options that are
subject to vesting.

(6) Address is 360 North Sepulveda Blvd., #3050, El Segundo, California 90245.

(7) Does not include 4,000 shares of common stock underlying options that are
subject to vesting.

(8) Address is Gruendgenstrasse 16D-22309 Hamburg, Germany.

(9) Includes 20,000 shares of common stock underlying presently exercisable
options.

Does not include 40,000 shares of common stock underlying options subject to
vesting.
<PAGE>

Item 12. Certain Relationships and Related Transactions

Markus Stalder, a member of COPE's board of directors, is also a member of the
law firm of Stalder & Murer, COPE's general counsel since 1991. In 1999, 1998
and 1997, COPE paid legal fees to Stalder & Murer in the amount of approximately
$57,000, $50,000 and $30,000, respectively.

As described in the section ''Business Development'' on page 3, in September
1998 the predecessor management of COPE completed a series of transactions by
which COPE discontinued all operations and divested itself of substantially all
of its assets and liabilities relating to the development and marketing of
health, fitness and medical products. Kevin DeVito, one of COPE's current
directors, was the President and a director of COPE prior to its acquisition of
COPE Holding AG.

In October 1999, COPE borrowed CHF 1,200,000 ($767,521) from its Chairman of the
Board, Adrian Knapp. The advance bore interest at the rate of 8.5% per annum.
COPE repaid the advance, with interest, in March 2000.

In December 1999, COPE borrowed CHF 500,000 ($314,090) from its President and
Chief Executive Officer, Stephan Isenschmid. The advance bore interest at the
rate of 8.5% per annum. COPE repaid the advance, with interest, in March 2000.

Item 13. Exhibits and Reports on Form 8-K.

(a) Index to Exhibits

2.1 Amended and Restated Securities Purchase Agreement and Plan of
Reorganization dated July 24, 1998 between the Registrant and
COPE Holding AG (14)

2.2 Common Stock Purchase Agreement dated September 11, 1998 between
the Registrant and New Capital Investment Fund (15)

3.1 Articles of Incorporation (1)

3.2 Certificate of Amendment dated September 11, 1998 to Certificate
of Incorporation (15)

3.3 Certificate of Correction dated September 15, 1998 to Certificate
of Amendment of Certificate of Incorporation (15)

3(ii) Bylaws (1)

10.1 Agreement with Licensia Export Trading Co. dated December 12,
1986 (2)

10.2 Agreement with Erich Klemke dated June 6, 1988 (3)

10.3 Amendment to agreement with European Investment and Equity
Trading dated March 30, 1989 (5)

10.4 Distribution agreement with Mobal AG, dated January 17, 1989 (4)

10.5 1989 Stock Option and Stock Award Plan (1)

10.6 Warrant Agreement dated as of November 13, 1989 among the
Registrant, ASFAG AG and Martin S. Wohnlich (5)

10.7 Agreement dated November 10, 1989 between Tibech AG and Bioptron
AG (5)
<PAGE>

10.8 Agreement dated February 7, 1990 between Tibech AG and Bioptron
AG (5)

10.9 Sales Agreement for HDC AG stock between Dr. Carl Odermatt and
the Registrant (5)

10.10 Distribution Agreement with Planeta, dated September 1, 1991
(with accompanying unofficial translation. (6)

10.11 Univ. of Michigan Agreement dated October 17, 1992. (10)

10.12 Univ. of Michigan Agreement dated March 18, 1992. (10)

10.13 Sale of Assets Agreement by and between the Registrant and a
German Investor (8)

10.14 Agreement to Dissolve Joint Research and Development Project by
and between the Registrant and Tecno-Bio CO., Ltd. (9)

10.15 Purchase and License Agreement of HDC AG by and between the
Registrant and Tecno-Bio CO., Ltd. T (9)

10.16 American Diagnostica Inc. R&D Joint Venture Agreement (11)

10.17 Loan Agreement between New Capital Investment Fund and Registrant
(12)

10.18 Asset Transfer and Plan of Liquidation and Dissolution dated
June 30, 1997 between the Registrant, Naturade, Inc. and
DermaRay, LLC (13)

10.19 Amended and Restated Securities Purchase Agreement and Plan of
Reorganization dated July 24, 1998 between Registrant and
COPE Holding AG. (14)

10.20 Agreement dated October 30, 1997 between Registrant and New
Concept Therapeutics, Inc. (13)

10.21 Agreement dated September 25, 1998 between Registrant, COPE
Holding AG, and New Capital Investment Fund.(17

10.22 Common Stock Purchase Agreement dated September 11, 1998 between
Registrant and New Capital Investment Fund.(17)

10.23 Assumption and Assignment Agreement dated September 11, 1998
between Registrant and Glycosyn Pharmaceuticals, Inc.(17)

10.24 Indemnification Agreement dated September 28, 1998 by New Capital
AG(17)

10.25 Sale and Transfer of Business Shares (Forum GmbH) dated July 25,
1998 between COPE GmbH and Peter Doelling(17)

10.26 Sale and Transfer of Business Shares (HICOMP Software Systems
GmbH) dated December 21, 1998 between Registrant and Uwe
Hinrichs(17)

10.27 Loan Agreement between Registrant and NORD/LB dated July 19,
1999.(19
<PAGE>

10.28 Loan Agreement between Registrant and NORD/LB dated October 13,
1999 (20)

10.29 Loan Agreement between Registrant and Adrian Knapp dated October
13, 1999 (20)

10.30 Loan Agreement between Registrant and an unaffiliated third party
dated October 13, 1999 (20)

10.31 Agreement between Registrant and Uwe Hinrichs dated October 4,
1999 (20)

16.1 Letter dated March 19, 1999 from Raimondo Pettit Group (16)

21.1 Subsidiaries of the Company

27.1 Financial Data Schedule

_____________________________________________________
(1) Filed as an exhibit to Proxy Statement dated May 14, 1990, filed on May 16,
1990 (File No 1-9925), incorporated herein by reference.

(2) Filed as an exhibit to Report on Form 10-K for the year-ended June 30, 1987,
filed on March 18, 1988 (File No 1-9925), incorporated by reference.

(3) Filed as an exhibit to Report on Form 10-K for the year-ended June 30, 1988,
filed on November 3, 1988 (File No 1-9925), incorporated herein by
reference.

(4) Filed as an exhibit to Report on Form 10-K for the year-ended June 30, 1989,
filed on October 13, 1989 (File No 1-9925), incorporated herein by
reference.

(5) Filed as an exhibit to Report on Form 10-K for the year-ended June 30, 1990,
filed on October 13, 1990 (File No 1-9925), incorporated herein by
reference.

(6) Filed as an exhibit to Report on Form 10-K for the year-ended June 30, 1991,
filed on October 13, 1991 (File No 1-9925), incorporated herein by
reference.

(7) Filed as an exhibit to Report on Form 8-K dated July 27, 1990, filed on
September 6, 1990 (File No 1-9925), incorporated herein by reference.

(8) Filed as an exhibit to Report on Form 8-K dated July 10, 1992, filed on July
31, 1992 (File No 1-9925), incorporated herein by reference.

(9) Filed as an exhibit to Report on Form 8-K dated August 1, 1992, filed on
August 26, 1992 (File No 1-9925), incorporated herein by reference.

(10)Filed as an exhibit to Report on form 10-K for the year-ended June 30,
1992, filed on October 24, 1992 (File No. 1-9925), incorporated herein by
reference.

(11)Filed as an exhibit to Report on Form 10-K for the year-ended June 30,
1993, filed on November 25, 1993 (File No. 1-9925), incorporated herein by
reference.

(12)Filed as an exhibit to Report on Form 10-K for the year-ended June 30,
1996, filed on December 3, 1996 (File No. 1-9925), incorporated herein by
reference.

(13)Filed as an exhibit to Report on Form 10-K for the year-ended June 30,
1997, filed on December 10, 1997 (File No. 1-9925), incorporated herein by
reference.
<PAGE>

(14) Filed as an exhibit to Registrant's Proxy Statement/Prospectus dated August
20, 1998 made part of the Registrant's Form S-4 Registration Statement
(File No. 33-53223), incorporated herein by reference.

(15) Filed as an exhibit to Report on Form 8-K dated September 25, 1998, filed
on October 13, 1998 (File No 1-9925), incorporated herein by reference.

(16) Filed as an exhibit to Report on Form 8-K dated March 18, 1999, filed on
March 24, 1999 (File No 1-9925), incorporated herein by reference.

(17) Filed as an exhibit to Report on Form 10-KSB for the year ended December
31, 1998, filed on May 7, 1999 (File No. 1-9925) incorporated herein by
reference.

(18) Filed as an exhibit to Registrant's Form SB-2 Registration Statement dated
June 30, 1999 (File No. 1-9925) incorporated herein by reference.

(19) Filed as an exhibit to Registrant's Pre-Effective Amendment No. 1 to Form
SB-2 Registration Statement dated August 31, 1999 (File No. 1-9925)
incorporated herein by reference.

(20) Filed as an exhibit to Registrant's Pre-Effective Amendment No. 4 to Form
SB-2 Registration Statement dated January 25, 2000 (File No. 1-9925)
incorporated herein by reference.
<PAGE>

SIGNATURES

In accordance Section 13(a) or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

COPE, INC.

By: /s/ Adrian Knapp
-----------------------------
Adrian Knapp
Chairman and Vice President

In accordance with the Exchange Act, this report As been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>
Signatures Title Date
- ------------------------------------ ---------------------------------------------------- --------------------------
<S> <C> <C>
/s/ Stephan Isenschmid President and Chief Executive Officer and April 10, 2000
- ------------------------------------ Director (principal executive officer)
Stephan Isenschmid

/s/ Markus Bernhard Chief Financial Officer (principal financial and April 10, 2000
- ------------------------------------ accounting officer)
Markus Bernhard

/s/ Adrian Knapp Chairman of the Board April 10, 2000
- ------------------------------------
Adrian Knapp

/s/ Markus Stalder Director April 10, 2000
- ------------------------------------
Markus Stalder

/s/ Peter Koch Director April 10, 2000
- ------------------------------------
Peter Koch

/s/ Kevin DeVito Director April 10, 2000
- ------------------------------------
Kevin DeVito
</TABLE>

<PAGE>

EXHIBIT 21.1

The subsidiaries of COPE, Inc. are COPE Holding AG and the wholly-owned
subsidiaries of COPE Holding AG: COPE AG, a Swiss stock corporation, COPE GmbH,
a German stock corporation, COPE GesmbH, an Austrian stock corporation, and
Hicomp Software Systems GmbH, a German stock corporation